25+ ASX 200 stocks due to catch up as AUD takes off

Another hot inflation print has left the RBA in an unenviable position. 

After three rate cuts last year, the central bank is likely to have its hand forced in hiking rates at its meeting next week - a move that few would have seen coming six months ago.

While it's bad news for mortgage holders and will have a knock-on effect for economic growth, there'll be some winners as well.

The Australian dollar is the obvious one. 

It has passed US$0.70 for the first time since January 2023, and the growing possibility of further rate hikes this year suggests AUD could rally further against the US dollar and other currencies.

And this dollar strength can also be good news for many ASX stocks, even if the reason isn't as obvious as relative earnings growth. 

As UBS wrote in a recent note, "from a pure earnings translation point of view, analysts would say a higher A-dollar crimps earnings. But this 'theoretical' point is overwhelmed by sentiment."

"Through time, the Australian equity market has shown itself to have a 'pro-cyclical' relationship to AUD moves, with Mining stocks usually leading the way."

"This 'amplifying' relationship is less to do with earnings translations, and seems increasingly more to do with the capital flow/'risk-on' tones which prevail through these periods." 

"We expect that global investors (who we believe are still crowded short the Australian equity market) will be energised to continue building positions in Aussie stocks to take advantage of this currency-driven 'catch-up' trade."

According to UBS analysis, Australian equities often outperform their global peers when the Aussie dollar is rising. 

It argues the investment implication of a further move up in the Aussie dollar is two-fold: overweight Australian equities in a global portfolio and overweight mining equities in an Australian portfolio.

Two stock screens by the UBS Equity Strategy team have identified the ASX 200 stocks that could be due to catch up to a surging Aussie dollar, whether it's because they're lagging their historical beta to an AUD rally, or are still well below their share prices the last time the Aussie dollar was above US$0.70. 

All these stocks are currently rated a Buy by UBS and could give you a great jumping off point for finding the ASX stocks best positioned to benefit from AUD strength.

 1 - ASX stocks that have lagged the AUD rally

In this first screen, UBS have identified 14 ASX stocks that have shown historical positive price betas to AUD moves, but on this occasion have seen their share prices fall over the past two months as the dollar has strengthened by 10%. 

As you can see from the list, this includes many ASX tech names that have been hit hard in the recent sell-off in Aussie tech but could rebound if their beta to the AUD holds true. 

The stocks are ranked based on how far they've undershot their implied share price based on their historical betas to AUD.

2 - "Cheap" ASX stocks compared to the last time AUD was above 70c

The second screen identifies the ASX stocks that are currently trading well below their valuations at the time the Aussie dollar was last at US$0.70 (February 2023).

According to UBS, these stocks are all currently rated a Buy, and could represent value opportunities, given they're mostly trading at reduced multiples relative to the ASX 200.

The stocks are ranked by the fall in price between February 2023 and today.

The outlook for AUD

With inflation remaining hot, UBS is forecasting the potential for three 25bps rate hikes in December, putting it slightly ahead of consensus.

"With Q4 headline CPI now running at 3.6% y/y (after 3.2% y/y in Q3-25), the increase seen over the past six months is amongst the largest seen in history."

"The hot economy means the RBA needs to act." 

As of 29 January, the ASX's RBA Rate Tracker suggested a 67% chance of a 25bps rate hike at the RBA's meeting next Tuesday. 

While UBS is projecting a cash rate of 4.35% this year, the ASX 30 Day Interbank Cash Rate Futures Implied Yield Curve's forecasts an implied cash rate of 4.185% by the end of the year.

What do you think?

Do you agree with these lists? Let us know in the comments below?