How 10 key ASX 200 stocks could be impacted by a rising AUD/USD

How commodity markets could see the AUD/USD run higher

Even though global commodity prices have run up strongly since April – as represented by the price movements of the CRB Raw Industrials Index (CRBRI) – Macquarie Wealth Management analysts believe that there may be further upside on the cards based on the performance of previous commodity upcycles.

Importantly, with the Australian Dollar heavily tied to commodity prices, in particular iron ore, coal, natural gas and gold – Macquarie’s basic model – based on commodity prices and interest rates between the United States and Australia – implies that the AUD/USD should already be trading at the $0.75 level.

Despite those models, the Aussie dollar last traded at $0.72, somewhat below the investment bank’s current expectations.

Mind you, should commodity prices rise further, Macquarie argues that the Australian dollar has the capacity to rise further, with it being noted that ‘In a scenario where the CRBRI rises 20% off the low (which is a modest upcycle), the implied AUD/USD is $0.80.’

On the other end of the spectrum, analysts from JP Morgan believe that weakness in the global economy is likely to drag on the performance of the Australian Dollar, with analysts from the investment bank arguing that:

‘The biggest factor driving the risk-sensitive Aussie will be the performance of the global economy. We see the currency dropping to 64 cents by year-end and particularly the ability to vindicate the rapid recovery in risk assets.’

How 10 key ASX 200 stocks may be impacted by a higher Australian dollar

As a corollary of a potentially higher Aussie dollar, worries have begun to emerge about how a number of key Australian companies – particularly those with significant offshore operations – will fare during the August earnings season and beyond.

Indeed, as Macquarie Wealth Management analysts warned:

‘Given ASX listed stocks are priced in Australian dollars, we think investors should care more about the lower AUD earnings of offshore companies. We do not think the market is giving enough attention to the potential impact of the stronger AUD on offshore earners.’

‘For any that still provide it, the higher AUD could lead to disappointing guidance.’

In light of such concerns and looking at some key ASX 200 stocks with significant US-China exposure, Macquarie has assigned Neutral ratings to Treasury Wine Estates, Computershare, and CSL.

On the other hand, owing to their strong domestic exposure, Macquarie has Outperform ratings on Telstra, Goodman Group, Sydney Airport, Crown, Spark Infrastructure, Charter Hall, and Transurban. The investment bank does however note that lockdowns in Victoria could adversely impact the near-term share price performance of some of those companies.

Elsewhere, a stronger Australian dollar – driven by favourable commodity prices – may also prove beneficial for a number of ASX-listed mining stocks, including Fortescue Metals Group, BHP Group and Rio Tinto – with Macquarie Overweight all three.

As a pure-play iron ore miner, Fortescue has been a particularly strong performer year-to-date, rising 72% in that period.

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