Superannuation funds are looking to increase foreign exchange hedging across offshore portfolios as global uncertainty keeps currency risk firmly in focus, according to CommBank’s inaugural FX Barometer.
Drawing on a quarterly survey of around 1,000 Australian-based corporates and super funds with exposure to foreign currency markets, the report showed super funds were already hedging more heavily in core offshore assets while planning further increases over the next three months.
The April survey was conducted between 16 February, before the start of the Iran war, and 10 April, shortly after a ceasefire was announced.
CommBank found super funds were hedging three-quarters or more of their foreign property and infrastructure assets, while hedge ratios for foreign private equity and hedge funds sat below one-third, highlighting wide variation across asset classes.
CommBank head of FX, international and geo-economics Joseph Capurso said the results showed super funds were taking different approaches depending on the nature of the underlying offshore assets.
“The CommBank FX Barometer shows significant variation in hedging ratios across super funds’ foreign assets. The core of these portfolios – listed equities and fixed income – have hedge ratios of around one-half and two-thirds, respectively,” Capurso said.
“By contrast, investments in private equity and hedge funds are much more exposed to currency moves, with hedge ratios below 30 per cent.
“Looking ahead, almost 90 per cent of super funds expect to increase their hedge ratios in the next three months. Hedge ratios are expected to rise across all asset classes, particularly private credit, private equity and hedge funds,” he said.
The report also found more than 80 per cent of super funds planned to increase their exposure to foreign exchange in the next three months, with those expecting to lift exposure forecasting an average increase of 13.6 per cent.
No super funds surveyed expected to reduce their foreign exchange exposure.
That shift came as super funds continued to expand offshore allocations, with the barometer suggesting currency management remained a key consideration as funds balanced return opportunities against volatility and member risk.
CommBank said super funds expected the Australian dollar to finish the year near current levels, at around US$0.71, slightly below the US$0.72 forecast by corporates.
“The CommBank FX Barometer shows both corporates and super funds expect the Australian dollar to end the year near current levels, around 0.71 to 0.72,” Capurso said.
“Nevertheless, Australian businesses may be caught out by a lower Australian dollar driven by ‘US exceptionalism’, including the artificial intelligence boom, as well as the Iran war.
“The stark differences in hedging suggest larger businesses are better protected than smaller businesses if the dollar falls,” he said.
Outside superannuation, the report showed elevated hedging activity among corporates, with importers hedging around 80 per cent of currency exposures and exporters that hedge covering 86 per cent, as firms sought to protect profits from sharp moves in the Australian dollar.
CommBank economist and currency strategist Carol Kong said the results underlined how sensitive earnings and investment decisions remained to currency swings.
“The CommBank FX Barometer shows changes in AUD/USD can have a large impact on profits and capital spending plans, highlighting the important role of hedging currency risk to help protect against unfavourable moves in currencies,” Kong said.
