Why is a weak US$ good for Australian resource stocks?

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Question asked 12/11/2022

Why is a weak US$ good for Australian resource stocks?

Dear James and Team, I keep reading that when the AU$ bottoms vs the US$ that it will be good for Aus resources (i.e. a rising AU$ = rising prices for resources stocks). Please can you explain why is the case. I would have thought that a stronger AU$ would mean lower commodity prices in AU$ terms. Probably a very simple answer but one that I just cant see at present. Having said all that, now that the AU$ looks to be bouncing is now the time to fill up with selected resources stocks (BHP, SFR, S32, etc)? Keep up the great work. Charles

Answer

Hi Charles,

Its more a case of a weak $US is bullish for commodities as opposed to a strong $A although they usually go hand in hand.

the likes of crude oil, copper, gold etc are all priced, bought & sold in $US hence a weaker greenback helps drive up the prices of these resources in $US terms.

Subsequently this leads to miners enjoying higher revenue in $US terms which usually more than outstrips the accompanying strength in the $A but of course this may not always be the case.

Thursday night was a classic example following the weak US CPI, the $A roared back above 66c helped by a weak greenback, the commodities surged higher e.g. gold up $US40/oz. The local Resources Sector not surprisingly enjoyed a bid tone after the Dow surged above 1200-points e.g. while the ASX200 was trading up +2.7% at 11am many resource heavyweights outperformed e.g. Fortescue (FMG) +5%, Sandfire (SFR) +6.3%, Evolution Mining (EVN) +6.6% and BHP Group (BHP) +3.5%. We like the commodity trade from and are overweight the sector.

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BHP Group (BHP)

LAST UPDATED 10/11/2022 16:27

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