Opportunity to ‘lock in’ currency gains: BetaShares

The weakness in the Aussie dollar against major currencies presents an opportunity for investors to ‘lock in gains’ made by other international currencies they hold.

The Australian dollar was down 14% intra-month against other major currencies including US Dollar, Euro and Japanese yen, having already been on a downward trajectory prior to the COVID-19 pandemic.

AUD vs major currencies (Indexed to 1) April 2019 - March 2020

Source: BetaShares

BetaShares said: “Considering the recent AUD movements and the longer-term perspective, investors holding international investment exposures may want to evaluate whether now is the time to neutralise any currency exposure these investments have.

“Alternatively, an investor could take an ‘each way’ bet by shifting part of their unhedged holding to a currency-hedged exposure.”

The firm said it had seen ‘significant demand’ from investors holding unhedged ETF exposures who were now switching to currency hedged ones, in order to lock in their currency gains.

Common switches included ETFs in the gold, healthcare, Europe and Japan sectors, with currency of particular importance when it came to offshore assets.

BetaShares chief economist, David Bassanese, said: “Ultimately it comes down to a question of - are you investing in an offshore asset for exposure to the performance of that asset, or rather, do you hold views on both the offshore asset and its currency, that are consistent with investing on an unhedged basis. Unhedged currency exposure adds another layer of complexity to your investment decision”.