The US dollar is soaring – So which ASX stocks stand to benefit?
Cyclical sectors like Materials (Fortescue. BHP and Rio Tinto) tend to underperform in a rising US dollar environment.
Source: Unsplash
Mentioned
KEY POINTS
- The US Dollar is in the midst of a bull market, up 6.3% since late September, with significant implications for Australian stocks across different sectors
- Cyclical sectors like Materials (Fortescue, BHP, Rio Tinto) show higher sensitivity to currency movements, while defensive sectors tend to outperform during rising US dollar environments
- Several ASX-listed companies have substantial foreign revenue exposure, with firms like Life360 (98%), Propel Funeral Partners (94%), and Aristocrat Leisure (84%) potentially benefiting from currency dynamics
The US Dollar is in a formidable bull market after Donald Trump's presidential victory, and amid ongoing tariff threats and a robust economic outlook for the United States.
The US Dollar Index has surged 6.3% since late September, completing an impressive eight-week rally – the longest since September 2023. Over the same time period, the Australian Dollar has dipped by a similar magnitude and is hovering near a seven-month low.
US Dollar Index (Source: TradingView)
Bloomberg reports that speculative traders have ramped up their dollar-positive bets to the most bullish level since late June, signalling confidence in further gains.
Source: Bloomberg
As the US Dollar continues to trend higher, you might start to think – Which ASX-listed companies stand to benefit?
Sector Winners and Losers
Last year, Citi analysed the sectors with the highest/lowest betas and T-stat measures against a rising Australian dollar (the opposite is happening now).
Beta: Measure of a stock's volatility relative to the market (or, in this case, relative to the Australian dollar). A beta of one or more suggests the stock is aggressive and its price movements are more volatile than the Aussie.
T-Stat: A high T-stat suggests that the movements between the Aussie and cyclical sectors are unlikely to be due to chance. A low T-Stat suggests that the difference could be attributed to random variations or other factors.
Sector | Cyclical or Defensive | Avg Beta | Avg T-Stat |
|---|---|---|---|
Materials | Cyclical | 0.6 | 1.2 |
Energy | Cyclical | 0.5 | 0.8 |
Financials | Cyclical | 0.1 | 0.5 |
Industrials | Cyclical | 0.2 | 0.1 |
Communications | Defensive | 0.1 | 0.1 |
Discretionary | Cyclical | 0.1 | 0.1 |
Technology | Cyclical | 0.2 | -0.1 |
Utilities | Defensive | -0.1 | -0.8 |
Real Estate | Defensive | -0.1 | -1.0 |
Staples | Defensive | -0.4 | -1.4 |
Health Care | Defensive | -0.3 | -1.5 |
Source: Citi Research December 2023
The analysts also examined which stocks tend to benefit from a higher/lower Australian dollar based on a ten-year monthly backtest.
The data shows that cyclical sectors have historically outperformed in a falling US dollar environment.
Ticker | Company | Sector | Beta | T-Stat |
|---|---|---|---|---|
Fortescue | Materials | 1.4 | 4.1 | |
BHP Group | Materials | 0.5 | 2.5 | |
Rio Tinto | Materials | 0.5 | 2.4 | |
Mineral Resources | Materials | 0.8 | 2.2 | |
Commonwealth Bank | Financials | 0.2 | 2 | |
Santos | Energy | 0.5 | 1.8 | |
Westpac | Financials | 0.2 | 1.7 | |
Seek Limited | Communication Services | 1.7 | ||
Bluescope Steel | Materials | 0.5 | 1 |
Source: Citi Research December 2023
While defensive sectors and those with hefty US-dollar-denominated earnings tend to outperform in a rising US dollar environment. "This is because both defensive outperformance and a falling Australian dollar typically coincide with economic uncertainty," the analysts said in the note.
Ticker | Company | Sector | Beta | T-Stat |
|---|---|---|---|---|
Brambles | Industrials | -0.6 | -3.9 | |
CSL | Health Care | -0.5 | -3.5 | |
APA Group | Utilities | -0.5 | -3.3 | |
Transurban Group . | Industrials | -0.3 | -2.8 | |
Telstra Group | Communication Services | -0.4 | -2.8 | |
ASX | Financials | -0.4 | -2.8 | |
Woolworths Group | Consumer Staples | -0.4 | -2.6 | |
Sonic Healthcare | Health Care | -0.4 | -2.6 | |
James Hardie Industries | Materials | -0.6 | -2.5 | |
Cochlear | Health Care | -0.4 | -2.4 | |
Aristocrat Leisure | Consumer Discretionary | -0.4 | -1.9 | |
Computershare | Industrials | -0.3 | -1.7 |
Source: Citi Research December 2023
Stocks by US Dollar Exposure
Morgan Stanley and Macquarie analysts conducted a separate analysis focusing on stocks with significant foreign revenue exposure, offering an additional perspective on potential earnings tailwinds.
For instance, Aristocrat Leisure says a single US cent change in the AUD/USD exchange rate could translate to an estimated $24 million impact on the Group's net profit after tax for the year ending 30 September 2024.
Company | Foreign (%) | Americas (%) |
|---|---|---|
Life360 | 98% | 92% |
Propel Funeral Partners | 94% | 91% |
Orora | 55% | 77% |
Aristocrat Leisure | 84% | 77% |
James Hardie Industries | 87% | 68% |
Resmed Inc. | 39% | 65% |
Fisher & Paykel | 99% | 59% |
Computershare | 85% | 57% |
Ansell | 95% | 56% |
Reliance Worldwide | 89% | 55% |
CSL | 92% | 53% |
Reece | 89% | 52% |
Breville Group | 80% | 50% |
Source: Morgan Stanley 2024
Company | Region | Exposure % |
|---|---|---|
Block | USA | 93% |
Austal | USA | 85% |
James Hardie | USA | 81% |
Aristocrat Leisure | North America | 79% |
Polynovo | USA | 77% |
Reliance Worldwide | Americas | 71% |
Computershare | USA | 69% |
Light & Wonder | USA | 67% |
Bluescope Steel | NatAM | 62% |
Cochlear | Americas | 59% |
Brambles | Americas | 56% |
Breville Group | Americas | 55% |
Source: Macquarie Research November 2024
