Dollar volatility is ‘going to stay for a while’: strategist

The coronavirus pandemic and the ongoing stimulus talks have driven the value of the dollar down to recent lows. Yahoo Finance’s Brian Sozzi and Alexis Christoforous break down the details and discuss what this could mean for some businesses with Wolfgang Koester, Kyriba Senior Strategist.

Video Transcript

ALEXIS CHRISTOFOROUS: Wolfgang, good to see you. Good morning. You actually said that a stimulus deal is bad for the US dollar. Why is that?

WOLFGANG KOESTER: Well, if you have a stimulus package, which actually keeps printing money and in other countries, you don't, you're going to have more quite frankly dollars, which then means that there's more supply and not as much demand. Therefore the price would go down.

But I think what you're actually seeing is that this, are we having a stimulus package or are we not having a stimulus package? What this looks like. What's more dangerous for corporations here is the volatility that's been creating ever since, quite frankly, March. So your trading volatility is significant high. And the corporations are not in the business to trade one currency versus the other and figure out whether the dollar is going up or down.

Corporations really are looking to be currency agnostic. They would love to work without the impact of this volatility. Obviously, that's not doable unless you manage your exposures properly. And so you have companies who really understand the foreign exchange exposures, which then translates into how good, and this is, I think, really important for investors is, how good our corporations is actually managing their entire liquidity.

Because liquidity might have been number four or five on priorities in the past, but currently, it's number one. It's your blood life. People understanding that in these tough times you really need to look at the entire liquidity of a company, and a good signal that is how they're managing the dollar.

BRIAN SOZZI: When do you think the-- this dollar weakness trade will-- will unwind and what's the trigger?

WOLFGANG KOESTER: Well, I-- I don't know is-- is the short answer of that. What I do know is that the volatility is going to stay here for quite a while and it's going to be a pain for companies. When the dollar goes down, they're making more money abroad, which actually is good for US companies' revenues. So, all of suddenly, your dollar goes down, but your jeans that you're selling in Europe, Euro is going up, so you're actually making money on that.

But on the other hand, if you're producing in a country where your dollar is getting less, then all of a sudden, that's not good for you. So you have these things that are going back and forth. And directionally it's very difficult to look at companies and see whether it's going to be good or bad for them when the dollar goes down. What is important here though is, what companies are not being impacted by it at the bottom line because they're managing it correctly.

ALEXIS CHRISTOFOROUS: Wolfgang, talk to us about some of those companies, if you can get specific. Which companies are managing their currency issues? You say that the goal is to be currency agnostic. That's tough for a multinational. Which companies are doing it right, right now?

WOLFGANG KOESTER: It is tough for a multinationals to do, but it is very doable today. The technology is there to do it and so they can manage it. So if you're looking at companies, like Bristol Myers Squibb, basically unimpacted. A massive company, large company that had less than a $3 million impact due to foreign exchange.

You go to Columbia Sportswear, very minimal impacts due to their revenues and to their bottom lines. You have companies like Google, who for years have been doing this really well. They understand their exposures and they can adjust it at any time, and I think that's the important part here. Now you have companies, like an Anheuser-Busch in comparison to that, when you really think about this it's a massive difference.

You had a company like Bristol Myers Squibb, basically immaterial impact and they're doing a good job on liquidity. And then you get a company like Anheuser-Busch, who lost last quarter alone $532 million. How many jobs would that be lost due to foeign exchange. They obviously don't understand their exposure. And if I'm an investor and I'm looking at what company is going to be good at managing that, that's probably not one I'm going to-- or one that I'll be very cautious, that's to be say.

Look at another company. Now this is a sweetheart in the IPO business for years and everybody loves this for the last couple of years. A company called Splunk. Great product, but how well are they managing their currency impact?

We've talked about this two weeks ago, where we said, you've got to kind of start warning about this. You've got to look at companies like that. You can look at their cue, their quarterly statements, as well as their annual statements, and it clearly states in there whether they're making or losing money. And that's a great indicator of how they're actively managing their entire liquidity.

Now they're growing great, so should it be immaterial? Maybe, maybe not. Splunk could be higher priced in their stock market if they got this part under control. And that's what investors need to look at.