Currency fluctuations and investing

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Q. I have some money invested in international shares. How does the fluctuations in the $A affect my return?

Josie’s Answer - Once a decision has been made to invest in a security of another country, it automatically involves an investment in that currency.

An investment in an American share will mean that the return will be affected by any movement in the US Dollar relative to the Australian dollar. If the US Dollar strengthens, then the value of an investment in a US share will also strengthen.

So depreciation of the Australian dollar adds value to an overseas investment, and an appreciation of the A$ means that it will detract from returns. If you are invested in a managed fund (and you probably are through your super), some fund managers have the option to employ hedging strategies or active management of currency.

Hedging is a tool employed as insurance, to protect a portfolio from future exchange rate variations. If you fund states it is ‘unhedged’ it means that it will benefit from a depreciating $A, but the return will reduce by an appreciating $A. Read more