Australia’s Second-Largest Pension Fund Boosts Currency Hedging Amid Weaker U.S. Dollar Outlook

Australia’s second-largest pension fund, Australian Retirement Trust (ART), has announced it is reducing its exposure to the U.S. dollar by increasing currency hedging, as global investors reassess their U.S. allocations amid falling interest rates and heightened market volatility. The move reflects growing expectations that the U.S. dollar may weaken in the coming year as monetary policy diverges across major economies.

Andrew Fisher, ART’s general manager of total portfolio management and resilience, said the prospect of U.S. interest rate cuts in contrast with potential rate hikes in countries such as Japan and Australia is likely to put downward pressure on the greenback. Financial markets are currently pricing in around 50 basis points of U.S. rate cuts in 2026, while rates are expected to rise in Japan and Australia and remain largely stable in Europe.

ART manages approximately A$353 billion in assets, making it the second-largest fund in Australia’s A$4.5 trillion superannuation system. Fisher emphasized that the fund is not reducing its exposure to U.S. equities, which total about A$53 billion, but is instead adjusting its currency strategy to better manage foreign exchange risk.

By increasing currency hedging on U.S. equity holdings, ART aims to reduce the impact of a potential decline in the U.S. dollar. Historically, many pension funds kept U.S. investments largely unhedged, as the dollar often strengthened during periods of market stress, providing a natural buffer. However, Fisher noted that this dynamic may be changing as U.S. policy priorities increasingly favor a weaker dollar to improve competitiveness.

ART plans to rebalance its global currency exposure by hedging more of its U.S. assets while leaving other international holdings, such as Japanese equities, more fully unhedged. This approach is designed to create a more balanced portfolio in an environment of shifting interest rates and geopolitical uncertainty.

The U.S. dollar, which recently traded near a six-week high, has softened against safe-haven currencies like the Japanese yen and Swiss franc following renewed tariff threats by U.S. President Donald Trump. These developments have added to expectations of continued volatility in currency markets, reinforcing ART’s decision to adjust its hedging strategy.