The speed of recent moves in financial markets, particularly the decline of the US dollar and the surge of the Australian dollar, is causing concern among investors. The US dollar fell to a four-year low against major currencies, while the Australian dollar rose 1 per cent, breaking through US70¢ for the first time in three years.
The US dollar’s weakness is attributed to geopolitical tensions, concerns about the Federal Reserve’s independence, and the belief that the US administration desires a weaker currency to boost exports and reduce its debt. Markets speculated about potential intervention by US and Japanese officials to strengthen the yen against the dollar. Meanwhile, the Australian dollar is benefiting from the US dollar’s decline, expectations of Reserve Bank interest rate hikes, and strong commodity prices.
The rapid shifts are particularly concerning for Australian superannuation funds, which have been re-evaluating their US-dollar hedging strategies. These funds, managing Australia’s $4.2 trillion savings pool, traditionally hedge a portion of their US-dollar exposure. Australian Retirement Trust (ART) is a superannuation fund that manages retirement savings for its members. They handle investment strategies to grow members’ funds over the long term. Commonwealth Bank didn’t anticipate the Aussie dollar hitting US70¢ until the end of March, highlighting the unexpected speed of the currency’s ascent.
Despite the currency volatility, US equity and bond markets have remained resilient, and global markets are performing well. Some observers believe a significant shift is underway, with the US dollar potentially losing its status as a reliable store of value. The speed of these currency movements warrants close attention from investors and financial institutions alike.
