Reserve Bank of Australia Deputy Governor: Forex hedging by pension funds will rise significantly, the theory of the dollar's demise is premature.

On September 16, Jin10 reported that Reserve Bank of Australia Deputy Governor Lowe stated that Australian pension funds are expected to “significantly” expand their forex hedging on a long-term basis, but also noted that predictions about the decline of the US dollar are premature. In his speech on Tuesday, Lowe pointed out that the costs for Australian investors to hedge forex risks have not changed much recently, and the implied volatility of the AUD/USD exchange rate remains lower than that of the US stock market. There is currently no evidence that international investors are significantly reducing their holdings of US assets—these all indicate that “predictions about the demise of the dollar and the end of Australia's hedging model seem somewhat premature.” In this context, Lowe stated that it is encouraging that the so-called superannuation funds are still improving their ability to manage forex and liquidity risks. This is important because “even if the average hedging ratio of superannuation funds does not change much in the short term, the overall forex hedging size in the market will significantly increase over a longer period.”