Macquarie’s best stocks for rate cuts and why Deutsche expects a higher Aussie dollar

Defensive stocks have outperformed the rest of our sharemarket since the RBA’s first rate cut in February, and Macquarie has identified the star performers.

A pause in tariff hostilities between the world’s two biggest economies has helped the outlook for Australian export demand. Picture: Getty Images

Defensive stocks have outperformed the rest of the Australian market by 10 per cent since the Reserve Bank’s first rate cut in February, with gold, telcos, insurance and utilities the star performers, according to an analysis by Macquarie.

These sectors are typically favoured when interest rate cuts start, as both the RBA and defensive assets are sensitive to economic risks.

“Defensives usually outperform after cuts, as both are driven by growth risks, but some outperformance has been given back since the tariff pauses,” Macquarie noted.

Australian shares have mostly recovered from the trade war sell-off since February, but the ASX 200 index is about 2 per cent lower than it was when rate cuts got under way.

While US stocks were rattled by rising bond yields this week, ASX 200 kept pace with other global markets, helped by a dovish shift in the RBA’s interest rate outlook as it cut rates again

The money market has added 20 basis points of interest rate cuts to its Reserve Bank expectations for the next 12 months, implying a 61 per cent chance of another 25 basis points cut at the July meeting and a total of three or four cuts by March 2026. In that backdrop, Macquarie Equities looks at how Australian stocks have performed since the February rate cut and what worked in past easing cycles.

Defensive stocks have beaten the ASX 200 by more than 10 percentage points since the February rate cut, led by gold, telecoms, insurance and utilities, even though their lead faded after the tariff pauses in recent weeks.

Cyclical retail led by 8 per cent, slightly more than a 7 per cent outperformance in consumer staples stocks, which have been the most consistent outperformer in past rate cut cycles, according to Macquarie. Construction materials, autos and consumer durables have been the worst performers amid James Hardie’s takeover of AZEK, as well as higher US bond yields and tariffs.

The traditional safe haven of gold stocks have beaten the ASX 200 since February.

But all three are interest-rate sensitive and the first two have outperformed historically, says Macquarie’s Australian equity strategist, Matthew Brooks.

With the US-China trade truce supporting a “risk-on” appetite for the near term, cyclical interest rate sensitive plays, such as SGH, ARB, Amotiv and Bapcor may benefit more from further cuts.

While the RBA is expected to cut rates again one or two times by August, the Fed is constrained by the inflationary impact of US tariffs and the US deficit. Mr Brooks sees this supporting a positive US-Australia bond yield spread, the US dollar and stocks with high US dollar exposure.

In large caps, Macquarie’s Outperform-rated stocks in that group include Aristocrat, ALS Limited, Amcor, BlueScope, Brambles, CSL, Fisher & Paykel Healthcare, Light & Wonder, and in small caps it likes Austal, Breville, Codan and Megaport.

Macquarie’s list of Outperform-rated stocks in sectors that tend to benefit from interest rate cuts includes Mirvac, Goodman, JB Hi-Fi, Harvey Norman, Lovisa, Coles, Woolworths, News Corp, Seek, Xero, Megaport, NextDC, Fisher & Paykel Healthcare, ResMed and SGH Limited.

With the outlook for the RBA’s cash rate target now potentially just as dovish as the US Fed funds rate outlook and Treasury market angst rising as President Trump’s “Big Beautiful Bill” may make the debt burden more unsustainable, the Aussie dollar struggled to make headway.

But Deutsche Bank macro strategist, Lachlan Dynan, says the stars may actually be aligning for the Aussie dollar. The external backdrop typically matters more for the Aussie than the domestic interest rate outlook, and the worst of the external backdrop may have passed, as China’s credit impulse is around its highest in four years and its fiscal impulse has lifted.

“Combined with the US-China climb-down on tariffs, the outlook for Australian export demand looks better than many had feared and the relative prices of those key commodity exports have already been pointing to a rise in the relative terms of trade, and in turn AUD/USD strength,” Mr Dynan said.

More broadly on the global front, while some level of tariffs looks to stay, he says the “relative clarity” of late should see the uncertainty and volatility subside. And helping offset a tariff-related drag on growth is an expected global fiscal impulse, aided by further monetary support as lower oil prices add to already soft inflation pressures outside the US.

“In the past, lower interest rate support has been far from a barrier for healthy AUD gains, he said. “And a more dovish central bank that is easing into a solid economy not only looks bullish for local risk assets, but could also mean an earlier return to hikes.”

Originally published as Macquarie’s best stocks for rate cuts and why Deutsche expects a higher Aussie dollar