RBA Rate Hike to Hit Currency-Hedged Funds, Warns InvestSMART CEO

Ron Hodge, CEO of InvestSMART, warns investors to be cautious about their currency-hedged exposures as the Reserve Bank of Australia (RBA) is expected to raise interest rates today. The RBA has already increased rates multiple times this year, reaching a current rate of 4.35 per cent.

Hodge notes that higher Australian rates can push up the value of the Australian dollar, which may negatively affect unhedged global ETFs. He cites an example of the Vanguard MSCI Index International Shares (Hedged) (VGAD) ETF, one of the top 10 largest ETF inflows for August, with $158 million in new investments.

However, Hodge advises against trying to time the market by using currency hedging. He believes that markets and currencies have already responded to expectations around interest rates, making it difficult for investors to consistently time either of them.