Predictions of death of US dollar as safe-haven 'premature': Andrew Hauser
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The news: Reserve Bank of Australia deputy governor Andrew Hauser has described predictions of the death of the US dollar and by extension Australia’s hedging model as “somewhat premature” while encouraging superannuation funds to scale up their risk planning and scenario-modelling capacity.
Speaking to the board of CLS Bank International during a visit to Sydney on Tuesday afternoon, Hauser said there is “little evidence yet” that institutional investors have substantially reduced their holdings of US assets.
He further said the correlation between movements in US equity prices and the Australian dollar have remained “close to its historical average through the recent market turmoil” and implied volatility in the exchange rate between the Australian dollar and the US dollar has remained lower than in US equities. And he said the cost of hedging against FX risk for Australian investors hasn’t changed much.
The numbers: Hauser referred multiple times to projections that total super fund assets will grow from 150% of GDP to 180% over the coming decade. He said the share devoted to overseas asses is set to rise and ageing fund members are likely to demand higher certainty of returns.
“The first of these factors alone could see the superannuation sector’s total FX hedge book, currently estimated to be of the order of $0.5 trillion, to double over the next decade. The other two factors will increase this number by some further multiple over the coming years,” he said.
He said super funds are “already thinking hard” about what this means for future liquidity management, such as ensuring they have resources to meet short-term needs.
“Those potential liquidity needs appear manageable today under most scenarios. But hey will grow over time as the hedge book increases in size,” he said.
“And the practice of using relatively short-term derivatives to hedge much longer term investment — though common amongst many institutional investment communities — means super funds are reliant on continuous access to functioning FX derivatives markets.”
The context: Hauser specifically pointed to the debate underway about the US dollar as a safe haven and noted the uncertainty in the market earlier in 2025 that actually saw the dollar depreciate by 8% on a trade weighted basis relative to its January peak much right after the Liberation Day tariffs were announced.
“Dire predictions abounded, including a rumoured mass exodus from US assets, and fears of the end of dollar hegemony in international capital markets,” he said.
Despite his comments, he said it was not a time for complacency about the scope for “a more material regime shift over time” with uncertainty elevated and US tariffs still at play.
He also said it was critical to “retain a laser focus on mitigating settlement risk” including ensuring as many eligible transactions as possible go through CLS. And he flagged the possibility that rival payment systems “built on less sound principles” could cannibalise transactions, noting it can be “hard to keep up with the hype cycle” from Distributed Ledgers to central bank digital currencies to stable coins.
What they said: Hauser said Australia is “bang at the heart of a quite exceptional period of uncertainty about the future direction of the global economic and financial system”, emphasised by the nation’s position as a major commodity exporter, its geographic position, openness to capital, developed FX hiding markets and superannuation funds investing increasing amounts offshore.
“Investors in some other countries do appear to have increased their hedging ratios in response to Liberation Day, with market attention focused on institutional investors in Europe and parts of Asia,” he said. “Those additional hedging flows may have played some role in amplifying the dollar’s decline for a period earlier in the year.”
He said the super fund sector also increased equity hedges in the June quarter but this pick-up “was only small”.
“So far, little fundamental seems to have changed — the Australian dollar has remained a well-functioning ‘natural’ hedge for global risky assets, and hedging costs are relatively low,” he said.
“But that could all change rapidly — and the structural trends towards growing super fund balances, much of which will have to be invested overseas, makes it ever more important that super funds in particular scale up their risk management and scenario planning capacity.”
The source: Andrew Hauser speech
