The Australian dollar has continued its meteoric fall today, crashing to its lowest level since October 2002. The Australian currency broke through the milestone level today, trading below 55.11 US cents.
The decline in the Australian dollar this week marks the currency's worst performance against the greenback since the global financial crisis.
Which ASX sectors and companies will be affected?
The low Aussie dollar will make life harder for companies in the struggling retail sector, which import a vast amount of goods from overseas. Even if these companies were able to improve their supply chain, buying goods from overseas will be too expensive and hard to pass on with consumer confidence at a low.
A low Aussie dollar can benefit the domestic economy and certain sectors and companies as Australian goods and products become higher in demand. However, given the COVID-19 pandemic, global growth remains stagnant and this trade-off will be harder to see.
The tourism and education sectors are usually first in line to benefit from a low Aussie dollar, as overseas visitors and consumers are attracted to Australian services. However, given the travel bans and restrictions initiated by the government, these flow on effects will be negated.
Why has the AUD fallen and can it keep falling?
The Aussie dollar has also performed poorly against the greenback after the US government proposed major stimulus initiatives in a bid to fight the economic effects of the COVID-19 pandemic.
The US government firmed the greenback by outlining a stimulus package that is estimated to cost as much as US$750 billion to US$1.2 trillion. Also, for the first time since the global financial crisis, the US Federal Reserve reintroduced a commercial paper funding facility.
In addition, as long as commodity prices remain under pressure and market sentiment remains risk averse, the Aussie dollar could come under more pressure. According to market economists, the Aussie dollar may not find a bottom any time soon as the Reserve Bank of Australia prepares to reduce the cash rate and begin quantitative easing.
Foolish takeaway
In order for investors to reduce selling pressure on the Aussies dollar, there needs to be strong signs of improvement in both the domestic and global economies.
Despite the doom and gloom, there may be positives to be found on the stock market. For example, A2 Milk Company Ltd (ASX: A2M) could stand to benefit, as infant formula remains in high demand overseas.
In addition, Fisher & Paykel Healthcare Corp Ltd (ASX: FPH) could see higher sales for its respiratory humidifiers.
