RBA rate hike strengthens the case for currency-hedged ETFs

4 February 2026

This week’s decision by the Reserve Bank of Australia (RBA) to increase the cash rate has reinforced the case for local investors to take a closer look at currency hedging within their offshore ETF portfolios, according to Global X ETFs Australia.

The RBA delivered a unanimous 25 basis point increase on Tuesday, lifting the cash rate to 3.85%, as it bowed to stubbornly high inflation and a labour market that remains tight.

Global X ETFs senior investment strategist Marc Jocum said economic activity has proven more resilient than expected and private sector demand has recovered over the past year.

“In that context, the greater risk for the RBA was doing nothing and allowing inflation pressures to become entrenched. Most economists surveyed had expected the move, even as other developed market central banks have started to ease policy,” Mr Jocum said.

“The RBA also pushed out its inflation timetable, now forecasting a return to target by June 2027, and signalled a higher policy path, with the cash rate expected to peak around 4.2% later this year. We can expect another rate hike in the coming months.”

The Australian dollar jumped above US$0.70 following the announcement, while local shares fell around 0.4% after the cash rate decision. Mr Jocum said the RBA decision adds to a broader surge in currency.

“The Australian dollar rose around 8% through 2025, including about 5% in January 2026 alone, and is now trading at levels not seen in over three years. Strength in the Aussie dollar has been driven by broad US dollar weakness and shifting interest rate expectations, with at least one more RBA hike expected in 2026,” he said.

“For Australian investors with unhedged offshore exposure, a rising currency can quietly act as a headwind. Even when global markets perform well, returns can look far more modest once translated back into Australian dollars. For investors uncomfortable with that volatility, currency risk deserves closer attention.”

In 2025, Australian investors who hedged their currency exposure saw significantly stronger results. Unhedged global equities returned 12.9%, while currency-hedged returns were 19.6%. In US equities, hedged returns were 18.3%, compared to 9.7% when exposed to the US dollar. Gold also benefited, with currency-hedged returns of 70.5% versus 58.7% unhedged.

Investor flows reflect this growing awareness.

The Global X Gold Bullion (Currency Hedged) ETF (GHLD) was one of the most popular Global X funds among Australian investors in 2025, attracting $207 million in inflows.

“If we look at the performance of gold so far in 2026, our currency-hedged ETF (GHLD) has outperformed unhedged gold by about 5 per cent,” Mr Jocum said.

“With the RBA turning more hawkish and the Australian dollar strengthening, currency hedging is becoming harder for investors to ignore.”

Currency-hedged ETF flows for global equities have nearly doubled their typical share of the market. Now representing over 20% of global equity ETF flows (up from the typical average of 10-15%), the data confirms that Australians are increasingly using currency-hedged products to de-risk their international exposure.