The Reserve Bank of Australia’s recent decision to increase the cash rate by a quarter of a percentage point to 3.85 per cent has amplified the importance of currency hedging for Australian investors with offshore portfolios, according to Global X ETFs. Global X ETFs provides investors with accessible tools to achieve their investment objectives. The company specialises in thematic investing, offering a range of exchange-traded funds across various sectors and asset classes.
Marc Jocum, senior investment strategist at Global X ETFs, highlighted the potential impact of a strengthening Australian dollar on unhedged investments. Jocum noted that the Australian dollar appreciated by approximately 8 per cent through 2025. For investors who haven’t hedged their currency exposure, this appreciation can erode returns, even when global markets perform favourably.
Data from 2025 illustrates the advantages of currency hedging. Hedged global equities yielded 19.6 per cent, significantly surpassing the 12.9 per cent return for unhedged global equities. Similarly, hedged US equities returned 18.3 per cent, while unhedged US equities returned 9.7 per cent. Gold also experienced a notable difference, with hedged returns at 70.5 per cent compared to 58.7 per cent unhedged.
This trend is reflected in increasing investor activity, as currency-hedged global equity ETFs now account for over 20 per cent of Australian offshore ETF flows, a rise from the typical 10 to 15 per cent. Jocum suggests that with the RBA adopting a more hawkish stance and the Australian dollar gaining strength, the necessity of currency hedging is becoming increasingly evident for investors seeking to protect their returns.
