THE Australian dollar (AUD) has been one of the worst-performing currencies since Donald Trump won the US election.
The AUD is down almost five per cent and is the third worst G10 performer after the New Zealand dollar (-5.13pc) and Japanese yen (-7.01pc).
Looking at Emerging Asian currencies, the AUD has only managed to outperform the Malaysian Ringgit (-5.49pc). Although a softer AUD should not be surprising, given a backdrop of a broadly stronger US Dollar (fuelled by a post-election re-pricing for higher US growth and inflation as well as expectations of higher US interest rates), the fact that the AUD has been one of the underperformers, in an environment where risk appetite has improved and commodity prices have remained broadly resilient, is somewhat surprising.
One stock that has been ear marked for success by some post-election, is James Hardie (JHX). Recently it delivered a 10pc lift in underlying earnings through the first half of 2017, however management downgraded guidance due to operational inefficiencies and capacity issues which impacted sales.
Management were disappointed that given their market share and the 25.5pc earnings margin achieved they should have been much higher if they were able to capitalise on demand.
Manufacturing capacity issues continue to restrict supply and saw JHX draw down significant inventory to meet demand. Some plants were also running less efficiently which added to the problems. As a result, the downgrade in FY17 guidance to $250m to $270m, from $260m to $290m, is a combination of start-up costs in re-starting a number of facilities and looking for additional capacity to be able to meet orders.
The key focus for FY17 is to ramp up capacity and manage additional start-up costs; currently $10m to $11m.
- Christopher Hindmarsh is an adviser at JBWere Limited which is owned by NAB. Email christopher.hindmarsh@jbwere.com or contact (02) 9325 2639. Readers should assess if the information is appropriate for their circumstances.