S&P/ASX 200 Index (ASX: XJO) shares are not all created equal.
Some tend to perform better when the Aussie dollar is weaker against the US dollar and other foreign currencies. And some are prone to outperform amid a stronger Australian dollar.
Now, as you're probably aware, the Aussie dollar is trading near a three-month high against the greenback.
On Tuesday afternoon it was worth 71.48 US cents. That's up 7.0% since 16 January, when the exchange rate stood at just 66.81 cents.
We'll look at which ASX 200 shares may catch tailwinds from the stronger domestic currency, and which might face headwinds, below.
But first…
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What's driving the Aussie dollar higher?
The recent strength of the Australian dollar versus US currency has been driven on several fronts.
First, global currency markets appear to have gotten the jitters, with public debt in the world's biggest economy now topping US$40 trillion.
Then there are the efforts underway by the world's number two economy to strengthen its own currency, which could further support the Aussie dollar and change the market dynamics for certain ASX 200 shares.
According to National Australia Bank Ltd (ASX: NAB) senior FX strategist Rodrigo Catril (quoted by The Australian Financial Review):
We shouldn't forget that when it comes to currencies and the yuan, the Aussie has the strongest correlation to it. And the People's Bank of China has made very clear that they want to see a stronger currency.
Catril added that the ongoing war with Iran and further increases in US public debt could see the Australian keep climbing to US 72 cents.
Now one last item of importance here. Namely, that currency moves are notoriously difficult to call, so a retrace is always possible in the weeks or months ahead.
With that said…
Which ASX 200 shares could be impacted by a stronger Aussie dollar?
Keeping in mind that a range of other factors could impact the performance of these ASX 200 shares – positively or negatively – more than any changes in the AUD exchange rate with the greenback, the first company I'd avoid buying amid a strengthening Aussie dollar is BHP Group Ltd (ASX: BHP).
Now there's a lot to like about BHP shares, particularly the mining giant's fast growing copper exposure.
However, most of the commodities that BHP digs up and sells are denominated in US dollars, while the company reports in Aussie dollars. So, a rising AUD could crimp BHP's international earnings.
For similar reasons I'd avoid gold mining giant Northern Star Resources Ltd (ASX: NST) in this setting. That's because gold is priced in US dollars, so a stronger AUD could also reduce Northern Star's revenue and profit margins.
Turning to the first ASX 200 share that could benefit from a rising AUD we find Qantas Airways Ltd (ASX: QAN).
First a rising AUD could boost international travel demand from Aussie travellers. Second, much of Qantas' costs – think jet fuel and aircraft parts and purchases – are priced in US dollars. So, a strong Aussie dollar could increase Qantas' profit margins and earnings.
Which brings us to the second ASX 200 share I'd buy amid a strength Australian currency, JB Hi Fi Ltd (ASX: JBH).
That's because JB Hi-Fi imports a lot of its merchandise, often priced in US dollars or other foreign currencies. As the Aussie dollar rises, those purchase prices will come down, supporting JB Hi-Fi's margins and earnings.
