The Reserve Bank of Australia’s recent decision to raise interest rates by 0.25 percentage points 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 offers investors access to a range of thematic and international equity ETFs. Senior Investment Strategist Marc Jocum notes that a strengthening Australian dollar can erode returns for unhedged investors, even in a positive global market environment.
Jocum highlighted that the Australian dollar appreciated by approximately 8 per cent throughout 2025, including a notable 5 per cent surge in January 2026. Historical data from 2025 illustrates the benefits of hedging, with hedged global equities yielding 19.6 per cent compared to the 12.9 per cent return for unhedged equities. Similarly, hedged US equities returned 18.3 per cent, significantly outperforming the 9.7 per cent return from their unhedged counterparts. Gold also saw a substantial difference, with hedged returns at 70.5 per cent versus 58.7 per cent unhedged.
This trend is reflected in increased investor activity, Jocum said, as currency-hedged global equity ETFs now account for over 20 per cent of Australian offshore ETF flows, a notable increase from the typical 10-15 per cent. The shift indicates growing awareness among investors of the potential risks associated with currency fluctuations.
“With the RBA turning more hawkish and the Aussie dollar strengthening, currency hedging is becoming harder for investors to ignore,” Jocum stated, underscoring the increasing relevance of currency management strategies in the current economic climate.
