UniSuper Raises Currency Hedging, Says Australian Dollar Could Climb Higher

Post by : Saif Nasser

Australia’s major pension fund UniSuper has adjusted its investment strategy, saying the Australian dollar is currently undervalued and may strengthen in the near future. As a result, the fund has increased currency hedging on its overseas investments.

UniSuper manages around A$166 billion in retirement savings. Its Chief Investment Officer, John Pearce, said the fund recently made small changes to its hedging strategy because it believes the local currency should be trading at a higher level.

The Australian dollar was trading close to $0.7056 on Friday. Earlier this month, it touched a three-year high of about $0.71465. In November, it had dropped to nearly $0.6422 before beginning its recovery.

Pearce said strong commodity prices are one reason the currency should be stronger. Australia exports large amounts of natural resources, including iron ore and coal. When global prices for these goods are high, the country’s income improves, and its currency often rises. He noted that the dollar’s recent movement has been slower than expected.

Another important factor is the difference in interest rates between Australia and the United States. The Reserve Bank of Australia recently raised its key interest rate to 3.85%, and markets expect at least one more increase this year.

Meanwhile, the Federal Reserve has kept its main rate steady between 3.50% and 3.75%. Investors believe the U.S. central bank may lower rates later this year. When Australian interest rates are higher than U.S. rates, global investors may find Australian assets more attractive, which can support the currency.

Currency hedging helps protect investments from changes in exchange rates. Many Australian pension funds invest heavily in U.S. shares. In the past, they often avoided hedging because the U.S. dollar tends to rise during times of global stress, offering natural protection.

However, when Australian interest rates were lower than U.S. rates, hedging came at a cost. Pearce explained that this situation has changed. The current rate difference means there is now a financial benefit to hedging, making it more appealing for large investors.

Other major superannuation funds, including Australian Retirement Trust and HESTA, have also increased their currency protection in recent months. This suggests a wider shift in strategy among Australia’s retirement funds.

Some market watchers have questioned whether increased demand for Australian dollars from large funds could push the currency up too quickly. Pearce downplayed those concerns, saying the global currency market is vast and unlikely to be heavily influenced by individual fund decisions.

For millions of Australians, these moves are important because pension funds manage their retirement savings. Adjusting hedging strategies can help reduce risk and protect long-term returns.

The future direction of the Australian dollar will depend on global trade, interest rate decisions, and economic conditions in both Australia and the United States. For now, UniSuper believes the currency has more room to grow and is positioning its portfolio accordingly.