The US dollar is soaring – So which ASX stocks stand to benefit?

Cyclical sectors like Materials (BHP, FMG and RIO) tend to suffer in a rising US dollar environment while defensives tend to outperform.
Kerry Sun

Livewire Markets

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)
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
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. This isn't a game-changer but may present a small incremental change to earnings.

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


This article first appeared on Market Index on Wednesday 27 November 2024

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Kerry Sun
Content Strategist
Livewire Markets

Kerry is a Content Strategist at Market Index. He writes the daily Morning Wrap and Weekend Newsletter. Kerry is passionate about trading and the catalysts that influence the market. His content focuses on highlighting the key data and insights...

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