Mr Oliver said the fall of the Australian dollar to more “fundamentally justified levels” is good for the Australian economy but when the dollar is in “free-fall” it is often bad news since foreign investors “retreat for the sidelines”.
“After a while, the lower [Australian dollar] will become a source of support for the market as it flows through to upwards revisions to earnings expectations,” Mr Oliver said.
“A rough rule of thumb is that each 10 per cent fall in the value of the [dollar] boosts company earnings by three per cent,” he said.
“Providing the downtrend in the [dollar] remains gradual, the negative impact from the boost to inflation flowing from higher import prices should remain modest.”
Mr Oliver also said “more significantly” the outlook for a continuing downtrend in the value of the Australian dollar “highlights the case” for Australia-based investors to have a relatively greater exposure to offshore assets that are not hedged back to Australian dollars.
“Put simply, a declining [Australian dollar] boosts the value of an investment in offshore assets denominated in foreign currency 1 for 1,” Mr Oliver said.
“[For example,] a 10 per cent fall in the value of the [Australian dollar] will boost a foreign share portfolio by 10 per cent in value in Australian dollar terms,” he said.
Mr Oliver pointed out the longer term downtrend in commodity prices also works in favour of having a “relatively greater exposure” to traditional global shares.
“The US, Europe and Japan are commodity users and tend to benefit from softer commodity prices whereas it’s a headwind for the Australian economy,” Mr Oliver said.
