Australian superannuation funds, managing a substantial $4.2 trillion in retirement savings, are reportedly reducing their exposure to foreign currencies. This shift comes amid increasing apprehension that a strengthening Australian dollar could negatively impact investment returns, particularly given the funds’ significant investments in global markets. Data from the prudential regulator highlights these considerable adjustments in currency hedging strategies. These adjustments could see the Australian dollar increase as superannuation funds purchase more local currency in an effort to circumvent losses associated with a weakening US dollar.
The increase in hedging activity shows funds actively managing currency risk. Industry super funds have been particularly active, increasing the proportion of their global stock portfolios that are hedged against foreign currency fluctuations.
In the three months leading up to June, there was a noticeable increase in hedging. Industry super funds increased the proportion of global stocks that are hedged against declines in foreign currencies from 20.6 per cent to 22.2 per cent. This indicates a proactive approach to mitigating potential losses from currency movements.
