Australian Bureau of Statistics

Rate the ABS website
ABS Home > Statistics > By Catalogue Number
ABS @ Facebook ABS @ Twitter ABS RSS ABS Email notification service
5308.0 - Foreign Currency Exposure, Australia, March Quarter 2013  
Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 31/10/2013   
   Page tools: Print Print Page Print all pages in this productPrint All RSS Feed RSS Bookmark and Share Search this Product

ANALYSIS AND COMMENTS


FOREIGN CURRENCY EXPOSURE

Table 1

At 31 March 2013, Australian resident enterprises had a net long foreign currency exposure of $686.4b after taking account of hedging through the use of derivative contracts. This is an increase of $298.3b (77%) on the 31 March 2009 exposure of $388.1b.

The foreign currency balance sheet exposure at 31 March 2013 was a net long position of $338.3b, an increase of $294.6b on 31 March 2009. Foreign equity assets increased $212.6b, while foreign currency denominated debt assets decreased $28.5b and foreign currency denominated debt liabilities decreased $110.5b.

The foreign currency exposure including expected future foreign currency denominated receipts and payments from trade in goods and services, but before derivative holdings, at 31 March 2013 was a net long position of $533.1b. This is an increase of $432.5b on the 31 March 2009 exposure, driven by an increase of $137.8b in net foreign currency denominated receipts from trade.


FOREIGN CURRENCY EXPOSURE BY SECTOR

Table 2

Banks had a net short foreign currency exposure before derivative holdings of $194.2b, a decrease of $122.4b on the net short position of $316.6b at 31 March 2009. This is primarily due to a decrease in foreign currency denominated debt liabilities of $89.6b. After derivative holdings, banks had a net long foreign currency exposure of $66.1b, an increase of $28.2b on the net long position of $37.9b at 31 March 2009.

The RBA had a net long foreign currency exposure before derivative holdings of $38.6b, a decrease of $5.3b on the net long position of $43.9b at 31 March 2009. After derivative holdings, the RBA had a net long foreign currency exposure of $44.4b, an increase of $1.1b on the net long position of $43.3b at 31 March 2009.

Other financial corporations had a net long foreign currency exposure before derivative holdings of $337.0b, an increase of $115.7b on the net long position of $221.3b at 31 March 2009. This was primarily driven by a $68.3b increase in foreign equity assets and a $59.8b decrease in foreign currency denominated debt liabilities. After derivative holdings, other financial corporations had a net long foreign currency exposure of $200.3b, an increase of $46.3b on the net long position of $154.0b at 31 March 2009.

Central borrowing authorities and general government had a net short foreign currency exposure before derivative holdings of $7.1b, a turnaround of $13.7b on the net long position of $6.6b at 31 March 2009. After derivative holdings, central borrowing authorities and general government had a net short foreign currency position of $30.9b at 31 March 2013, a turnaround of $34.0b on the net long position of $3.1b at 31 March 2009.

Other resident sectors had a net long foreign currency exposure before derivative holdings of $358.8b, an increase of $213.4b on the net long position of $145.4b at 31 March 2009. The rise is primarily due to a decrease in expected foreign currency payments from trade of $105.3b and an increase in expected foreign currency receipts of $93.4b. After derivative holdings, Other resident sectors had a net long foreign currency exposure of $406.5b, an increase of $256.7b on the net long position of $149.8b at 31 March 2009.


FOREIGN CURRENCY EXPOSURE OF ASSETS AND LIABILITIES BY CURRENCY

Table 3

The United States dollar accounted for $281.8b of the total foreign equity assets of $669.3b. This represents 42% of the total compared with 51% at 31 March 2009. This was followed by the Other currency group(footnote 1) , accounting for $181.7b, or 27% of the total.

The United States dollar accounted for $227.8b of the total foreign currency denominated debt assets of $387.2b. This represents 59% of the total compared with 63% at 31 March 2009. The Other currency group accounted for $46.4b, or 12% of the total.

The United States dollar accounted for $481.9b of the total foreign currency denominated debt liabilities of $718.2b, representing 67% of the total compared with 59% at 31 March 2009. The Euro accounted for $92.4b, or 13% of the total.
FOREIGN CURRENCY ASSETS AND LIABILITIES BY INSTRUMENT

Table 7(footnote 2)

Loans accounted for $188.7b of the total foreign currency denominated debt assets of $387.2b, representing 49% of the total. Long-term debt securities accounted for $114.3b, or 30% of the total.

Of the $387.2b total foreign currency denominated assets held by Australian resident entities, $124.6b (32%) were claims on intra-group counterparties.

Long-term debt securities accounted for $392.3b of the total foreign currency denominated debt liabilities of $718.2b, representing 55% of the total. Short-term debt securities accounted for $109.8b, or 15% of the total.

Of the $718.2b total foreign currency denominated liabilities owed by Australian resident entities, $135.9b (19%) were obligations owed to intra-group counterparties.
VALUE HEDGED AND MATURITY MATCHING FOR SHORT AND LONG-TERM DEBT SECURITY LIABILITIES

Tables 8, 11 and 12(footnote 2)

Total foreign currency denominated short-term debt security liabilities currently owed by Australian entities were $109.9b at 31 March 2013. Of this total, $89.1b, or 81% was hedged, of which $88.1b was maturity matched.

This position is predominantly made up of securities with a residual maturity of 'less than or equal to 90 days', accounting for $73.5b, or 67% of total foreign currency denominated short-term debt security liabilities. Of these securities, $58.3b (79%) was hedged, with $58.1b maturity matched.

Total foreign currency denominated long-term debt security liabilities currently owed by Australian entities were $392.4b at 31 March 2013. Of this total, $309.5b, or 79% was hedged, of which $291.9b was maturity matched.

This position is predominantly made up of securities with a maturity of 'greater than 1 year but less than or equal to 5 years', accounting for $204.1b, or 52% of the total long-term debt securities. Of these securities, $161.8b (79%) was hedged, with $154.9b maturity matched.
EXPECTED FUTURE FOREIGN CURRENCY DENOMINATED RECEIPTS AND PAYMENTS FROM TRADE

Table 9

Expected future foreign currency denominated receipts from exports were $360.1b, while expected future foreign currency denominated payments for imports were $165.3b. The net foreign currency exposure represented by the difference between receipts and payments was $194.7b, an increase of $137.8b on the difference of $56.9b at 31 March 2009.

The increase in the net foreign currency exposure is partly due to the increased coverage of exporters and importers in the 2013 survey compared with the 2009 survey. For more details please refer to paragraphs 2 and 4 of the Explanatory Notes.
DERIVATIVES HEDGING

Tables 13 and 14

Cross currency interest rate swaps accounted for $933.8b of the total $1,430.1b of derivative contracts involving the purchase of foreign currencies and the sale of Australian dollars. This was an increase of $312.8b on the 31 March 2009 result of $621.0b. The current result represents 65% of the total compared to 40% at 31 March 2009.

Forward foreign exchange contracts accounted for $387.8b of the total $1,430.1b of derivative contracts involving the purchase of foreign currencies and the sale of Australian dollars. This was a decrease of $342.1b on the 31 March 2009 result of $729.9b. The current result represents 27% of the total compared to 47% at 31 March 2009.

This indicates a significant move away from the use of forward foreign exchange contracts in favour of cross currency interest rate swaps, which was primarily driven by banks. At March 31 2013, of the total $1,430.1b, banks accounted for $1,217.4b (85%) of active contracts. This represents a decrease of $56.2b on the principal value of $1,273.6b reported by banks at 31 March 2009.

Cross currency interest rate swaps accounted for $618.9b of the total $1,276.7b of derivative contracts involving the sale of foreign currencies and the purchase of Australian dollars. This was an increase of $270.1b on the 31 March 2009 result of $348.8b. The current result represents 48% of the total compared to 28% at 31 March 2009.

Forward foreign exchange contracts accounted for $556.9b of the total $1,276.7b of derivative contracts involving the sale of foreign currencies and the purchase of Australian dollars. This was a decrease of $192.1b on the 31 March 2009 result of $749.0b. The current result represents 44% of the total compared to 60% at 31 March 2009.

Again, this indicates a significant move away from the use of forward foreign exchange contracts in favour of cross currency interest rate swaps, also driven by banks. At March 31 2013, of the total $1,276.7b, banks accounted for $957.0b (75%). This represents an increase of $37.9b on the principal value of $919.1b reported by banks at 31 March 2009.

Notional principal values for derivative contracts not involving the Australian dollar have increased from the 31 March 2009 reported total of $1,138.1b to $1,492.1b for the current survey, an increase of $354.0b. Banks continue to hold the dominant share of activity in the market, accounting for 94%, consistent with the reported 95% at 31 March 2009.

While the United States dollar continues to be the dominant traded currency, having increased from $539.1b to $689.4b, the Other currency group increased from $93.8b(footnote 3) to $322.4b between 31 March 2009 and the current survey.
HEDGING POLICY AND PRACTICE

Survey respondents were asked to provide quantitative and qualitative information on their approach to hedging foreign currency assets and liabilities with derivatives. These responses, together with discussions undertaken during the editing phase of the survey, indicate that the approach to hedging varies significantly across different financial instruments.

Though not formally tabulated in this survey, hedging by foreign-owned entities can be managed centrally by the parent company. Such cases are unlikely to involve hedging back into the Australian dollar. Changes in the level of business activities of Australian branches and subsidiaries of non-resident parents may have an effect on the measured foreign currency exposure of Australian resident entities. The same may also be true for Australian resident parent companies that hedge the foreign currency exposure of branches and subsidiaries centrally.
Table 10(footnote 4)

At the aggregate level, foreign currency debt liabilities tend to be more conservatively hedged than debt assets. Of the total $718.2b reported for debt liabilities, $434.4b (60%) was fully hedged compared to $264.2b (37%) reported under the residual component, All other, indicating either a strategy of no hedging, hedging conducted by non-resident parent entities or natural hedging against other holdings in the portfolio.

In contrast to debt liabilities, levels of exposure reported for debt assets under the All other component are significantly greater than the levels of exposure reported as fully hedged. Reported equity and debt assets totalled $1,056.5b. Of this, the all other component accounted for $724.8b (69%), compared to full hedging at $225.8b (21%).
Tables 17 to 23

The following qualitative data refers to only those units that reported employing an active hedging strategy as at 31 March 2013. Consequently, aggregate data in dollar terms may not align with comparative data items reported elsewhere in the publication.


Equity

As advised in Changes in this Issue, direct and portfolio equity have been combined for the current survey. Of the units employing an actively managed hedging strategy, levels of hedging for foreign equity assets vary considerably depending on sector. Banks remain risk adverse, with 89% of foreign equity assets under a full hedge policy. Central borrowing authorities and general government only apply partial hedge policies, with a weighted average hedging level of 70%. Other financial corporations prefer to apply partial hedge policies, with 86% of foreign equity assets under a partial hedge policy with a weighted average hedging level of 42.6%.


Debt Assets

Of the units employing an actively managed hedge strategy, 66% of foreign currency denominated debt assets not held with intra-group counterparties are under a full hedge policy. In comparison, only 22% of debt assets held with intra-group counterparties are under a full hedge policy.


Debt Liabilities

Of the units employing an actively managed hedge strategy, 59% of foreign currency debt liabilities not held with intra-group counterparties are under a full hedge strategy. In comparison, only 38% of debt liabilities held with intra-group counterparties are under a full hedge policy.


Trade Receipts and Payments

Discussions with respondents during the editing phase of the survey suggest that near term receipts and payments are more likely to be hedged, with the level of hedging falling as the time horizon increases. In line with the results from the previous survey, a number of the other resident sector units continue to rely on parent entities to perform hedging on behalf of the group.
SUMMARY

Overall, the reported net exposure of $686.4 after derivative holdings is largely due to foreign equity assets and expected net foreign currency receipts that are generally left exposed.

Different hedging policies across different financial instruments also explains why the net exposure after derivative holdings is greater than the net exposure before derivative holdings. The net exposure at an aggregate level reflects a natural hedge between foreign currency assets and liabilities that does not appear to be a prime consideration in hedging decisions at the level of the individual enterprise.

1 In this publication, the Swiss franc is not collected separately, and is now included in the Other currency class. <back
2 For analysis at the sectoral level, please see paragraphs 18, 19 and 20 of the Explanatory Notes. <back
3 In this publication, the Swiss franc is not collected separately, and is now included in the Other currency class. <back
4 For analysis at the sectoral level, please see paragraphs 18, 19 and 20 of the explanatory notes. <back

Bookmark and Share. Opens in a new window

Commonwealth of Australia 2014

Unless otherwise noted, content on this website is licensed under a Creative Commons Attribution 2.5 Australia Licence together with any terms, conditions and exclusions as set out in the website Copyright notice. For permission to do anything beyond the scope of this licence and copyright terms contact us.