Foreign Currency Exposure and Hedging in Australia

Abstract

The 2013 Australian Bureau of Statistics (ABS) Foreign Currency Exposure survey confirms that Australian entities’ financial asset and liability positions remain well hedged against a depreciation of the Australian dollar, either through the use of foreign currency hedging derivatives or through offsetting foreign currency asset and liability positions. Even before taking into account the use of hedging derivatives, Australian entities as a whole have a net foreign currency asset position with the rest of the world. After accounting for hedging derivatives, this overall net foreign currency asset position increases slightly. This is primarily because the banking sector hedges all of its net foreign currency liability exposure, although this is partly offset by other financial corporations hedging part of their overall net foreign currency asset exposure. As a result of this net foreign currency asset position, the Australian economy’s net overall foreign liability position would not in itself be a source of vulnerability in the event of a sudden depreciation of the Australian dollar.

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