A currency-hedged ETF aims to reduce the effect of exchange-rate movements on its underlying investments. An unhedged international ETF leaves that currency exposure in the return you receive in Australian dollars.
Neither approach guarantees a better result. To compare them, separate the underlying asset return from currency movement and the costs of implementing the hedge.
A recent reminder from AUD/USD
The RBA's daily exchange-rate table recorded US$0.7102 per A$1 on 23 September 2026 and US$0.7019 on 25 September. A lower number in that quotation means one Australian dollar buys fewer US dollars.
For an unchanged US$10,000 asset, those reference rates imply:
| Date | USD per AUD | AUD value of US$10,000 |
|---|---|---|
| 23 September | 0.7102 | $14,080.54 |
| 25 September | 0.7019 | $14,247.04 |
The approximately A$166.50 increase comes entirely from translation in this example. The US-dollar asset did not rise.
RBA reference rates are not executable broker quotes. These figures exclude spreads, fees and any change in the asset's value.
The unhedged return formula
For a USD asset, let the exchange rate be quoted as USD per AUD:
AUD return = (1 + USD asset return) × (starting exchange rate ÷ ending exchange rate) − 1
The quotation convention matters. Inverting only one rate, or subtracting currency percentages from investment returns without considering compounding, can produce the wrong result.
Consider a hypothetical A$10,000 investment when AUD/USD is 0.65. It buys US$6,500 of exposure. The underlying assets then rise 8%, becoming US$7,020.
| Ending AUD/USD | Ending AUD value | AUD return before costs |
|---|---|---|
| 0.70: stronger AUD | $10,028.57 | +0.29% |
| 0.65: unchanged AUD | $10,800.00 | +8.00% |
| 0.60: weaker AUD | $11,700.00 | +17.00% |
The same underlying investment return creates three different Australian-dollar outcomes. This table is arithmetic, not a currency forecast.
What a hedged ETF changes
Fund managers commonly use foreign-exchange contracts to offset currency movements. Vanguard's explanation of hedged ETFs describes how forward contracts support that objective.
A hedge targets the currency component. It does not protect the share portfolio from a fall in its local market, eliminate all tracking differences or guarantee the exact local-currency return.
Actual results depend on the hedge policy, reset dates, changing portfolio value and implementation. Read whether the fund targets full or partial hedging and which currencies it covers.
Compare total costs, not just the fee line
Two funds tracking a similar share universe can differ in management costs, trading spreads and the effect of their hedge contracts.
Forward exchange rates also reflect factors such as interest-rate differences between currencies. A hedge's return effect therefore cannot be represented by subtracting the management-fee difference alone.
For a real comparison, use the same period and examine total returns after fund costs. Check whether distributions are included and whether the underlying indices match.
Vanguard's discussion of currency hedging offers further context. Product disclosure documents remain the authority for a particular fund's approach.
An AUD ticker does not settle the question
The currency used to buy an ETF is different from the currencies of the assets it holds. An ASX-listed fund can trade in AUD while holding unhedged overseas shares.
Separate these three fields in your research:
| Field | Question |
|---|---|
| Trading currency | What currency do I pay on the exchange? |
| Underlying exposure | Which assets and currencies drive value? |
| Hedge policy | Which exchange-rate effects does the fund try to offset? |
Also distinguish fund domicile from currency hedging. An Australian-domiciled fund is not automatically hedged.
Choose a policy you can explain
Before selecting a version, write down what role the investment has:
- A long-term international equity allocation.
- A shorter holding tied to a specific overseas market move.
- A bond allocation where currency swings could dominate the intended exposure.
- Part of a broader portfolio that already has foreign-currency assets or obligations.
Then decide how much currency exposure you intend to retain. A mix of hedged and unhedged funds can be deliberate, but holding two versions without checking their underlying holdings can duplicate equity exposure.
Use the ETF overlap calculation to inspect that duplication. A hedge changes currency exposure; it does not remove the companies held in both funds.
Changing hedge policy after each AUD move can add turnover and make performance harder to interpret. Record the policy and review trigger before the next move.
Keep asset selection and currency attribution separate
In Swingfolio, use the correct instrument, currency and actual transaction records. Add the hedge policy to your research notes so you can explain why otherwise similar holdings behaved differently.
Do not attribute all AUD profit to stock selection. The benchmark guide explains how to compare returns in a common currency. For tax calculations, use the separate foreign-share tax guide; the return examples here are not a tax worksheet.
Common questions
Does hedged mean capital protected?
No. The underlying assets can fall, and hedging has its own costs and limitations.
Is unhedged always better when the AUD falls?
A weaker AUD generally helps translate unchanged foreign assets into AUD. Actual fund comparisons also depend on asset returns, hedge implementation, costs and dates.
Can I identify the policy from the exchange ticker alone?
Use the fund's official name, mandate and disclosure documents. The ASX listing currency is insufficient.
Reviewed 27 September 2026. Historical rates are dated reference observations. Other figures are hypothetical and exclude costs and tax.