Our Q&As are emailed in our Saturday Morning Report, find the answer to this question below.
Hi James Why does a strengthening US$ result in weakening resources stock prices? On the face of it, if contracts are written in US$s a rise in the value of the US$ would mean more A$ profit. Please excuse the dumb question. Cheers John
Hi John – firstly, no such thing as a dumb question to us, thanks for asking.
Your thinking is not wrong if markets price the now however remember that markets price the future rather than the present. While a strong $US / lower $A is positive for earnings today all things being equal, a higher $US ultimately makes raw materials more expensive and is therefore a negative for future demand. Also worth noting that the largest consumers of raw materials are developing countries and a strong $US is a negative for them overall.
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