S&P/ASX 200 Index (ASX: XJO) shares are not all created equally.
Each have their own unique strengths and weaknesses that will impact how they perform during different market dynamics.
Growth stocks, for example, are priced with future earnings in mind and generally do better in times of low or falling interest rates.
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The impact of exchange rates
Among the broader defining characteristics, some ASX 200 shares tend to perform better when the Aussie dollar is relatively weaker against global currencies, like the all-important US greenback. While others tend to see their profits tick up when the Aussie dollar is rising.
On 28 January this year the Australian dollar was worth 71.51 US cents. It then trended lower, trading for 62.95 on 25 October, before gradually recovering from there.
As at Wednesday afternoon, the Aussie dollar was worth 65.94 US cents, up 4.8% in about six weeks.
Much of that resurgence has been driven by expectations that the US Federal Reserve may be done with its interest rate hikes.
Australia, meanwhile, looks to have a longer road ahead to get inflation back within the Reserve Bank of Australia's 2% to 3% target range.
While the RBA left the official cash rate on hold this Tuesday at 4.35%, sending many ASX 200 shares higher, a number of analysts, including those at Citi, expect the central bank to boost rates again in early 2024 to 4.60%. And that could see the Aussie dollar continue to gain.
Here's which ASX 200 shares Citi believes stand to benefit from that scenario.
ASX 200 shares for a strong Aussie dollar
According to Citi's analysts (courtesy of The Australian), cyclical stocks generally benefit from a stronger Aussie dollar while defensive stocks may struggle.
That's important, as Citi is forecasting that the Australian dollar will fetch 76 US cents by the fourth quarter of 2025. That's some 15% above the current exchange rate.
The investment bank believes the US will enter a recession in 2024 to nail down inflation, while its analysts are more bullish on Asian growth, in part due to expectations of further stimulus from China.
As for the ASX 200 shares that have historically outperformed amid a rising Aussie dollar, Citi Australia equity strategist Liz Dinh named these nine:
- Fortescue Metals Group Ltd (ASX: FMG)
- BHP Group Ltd (ASX: BHP)
- Rio Tinto Ltd (ASX: RIO)
- Mineral Resources Ltd (ASX: MIN)
- Commonwealth Bank of Australia (ASX: CBA)
- Westpac Banking Corp (ASX: WBC)
- Santos Ltd (ASX: STO)
- Seek Ltd (ASX: SEK)
- BlueScope Steel Ltd (ASX: BSL)
While it's early days yet to test this theory, here's how these nine ASX 200 shares have performed since the Aussie dollar began to rebound on 25 October:
- Fortescue shares have gained 17.8%
- BHP shares have gained 8.4%
- Rio Tinto shares have gained 11.5%
- Mineral Resources shares have gained 3.6%
- CBA shares have gained 8.6%
- Westpac shares have gained 4.3%
- Santos shares have fallen 13.6%
- Seek shares have gained 14.9%
- BlueScope shares have gained 14.6%
For some context, the ASX 200 is up 4.8% since the closing bell on 24 October.
