Vanguard's VGS Fund Sees Boost as Aussie Dollar Weakens
The Australian dollar has slipped to its weakest level in roughly two months despite the Reserve Bank of Australia (RBA) increasing interest rates.
Vanguard's VGS fund, which tracks a broad index of large and mid-sized companies across developed markets outside Australia, benefits from this weakness since it is unhedged. As a result, a softer local currency lifts the Australian dollar value of its offshore portfolio.
The RBA's decision to raise interest rates did not have the expected effect on the currency, as it had been widely anticipated and Wednesday's inflation data led money markets to trim the odds of another increase in November. The US Federal Reserve's rate hike in mid-September has also contributed to the broad US dollar strength.
The Australian dollar had already recorded the largest decline among major currencies against the US dollar in the week to Friday, according to weekly currency data. This sharp reversal highlights how quickly currency sentiment can change when global rate expectations shift.