Do foreign exchange rates impact my super?
If you were about to travel overseas, you may start watching the exchange rate for the country you are travelling to. Does it seem to be going up or down against the Australian dollar? This is because your spending power is impacted by the relative strength of the Australian dollar. What you may not know is movements in exchange rates can also impact your super.
Why some of Cbus’ investments are overseas
Cbus invests in assets in Australia and around the globe. International investments provide the fund with access to growth opportunities from countries outside of Australia. Cbus invests in a range of overseas investments including international shares, property, infrastructure and fixed income.
Our international investments are generally valued in foreign currencies. This creates a new risk called currency exposure. As currencies can move up or down relative to the Australian dollar, we need to be aware of the risks and opportunities this creates.
An example of the impact of foreign currency exposure
Cbus invests in Indiana Toll Road in the United States. If the Australian dollar rises relative to the US dollar, the value of the asset in Australian dollar terms would fall in value as would the income generated by the toll road. This is an additional risk that we need to manage. Currency risk is not a consideration when investing in a toll road in Australia.
How does Cbus manage this potential risk or opportunity?
We aim to protect the value of some overseas assets from movements in currencies by hedging. Hedging involves locking in an exchange rate to reduce the impact of currency movements in the future.
Does Cbus hedge all its foreign currency exposure?
No. For example, Cbus leaves part of our foreign currency exposure unhedged. Having some foreign currency exposure helps reduce the impact of share market movements on the overall portfolio. This is because the Australian dollar tends to fall when share markets fall, meaning these movements can partially offset one another.
What does this mean for your super?
Although foreign currency can be impacted by movements in the Australian dollar, holding them can also provide some protection for your super if share markets fall.