5302.0 - Balance of Payments and International Investment Position, Australia, Dec 2015 
Quality Declaration
Quality Declaration ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 01/03/2016
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A VIEW INTO UNITED STATES DOLLAR EXPOSURE Table 1: USD currency exposure (a)
NATURAL HEDGES THROUGH EQUITY INVESTMENTS, USD INVOICING OF TRADE AND INCOME ON INVESTMENTS 9 Natural hedges are created when payment obligations and/or receipts are at least partially offsetting to mitigate the effects of exchange rate fluctuations. For instance, the foreign currency risks associated with payments in United States dollar is reduced when there are counter United States dollar denominated receipts as inverse effects of currency fluctuations on either side of the transactions effectively reduces the exposure to currency fluctuations. Equity Assets 10 Direct Investment in foreign equity assets are long term by nature, therefore explicit hedging using derivative hedging over the longer period may only provide marginal benefits over the long run. As evidenced in the Foreign Currency Exposure (cat. no. 5308.0) publication there tends to be little formalised derivative hedging on exposures associated with direct investment in foreign equity assets. However, foreign currency borrowing associated with foreign direct equity assets holdings are in most naturally hedged by the equity holdings underpinning the investment. For instance, an Australian company holding direct investment equity assets in a USA domiciled enterprise may fund the purchase with borrowing in United States dollar meaning the exposed equity asset denominated in United States dollars is offset against its United States dollar borrowing, reducing the net currency exposure. 11 The growth in USA domiciled portfolio investments equity assets reflect the growth in Australian funds under management. As diversified and pooled products are offered by the funds management industry, likewise formalised hedging is increasingly underpinning these portfolio equity investments, therefore portfolio activity is generally not naturally hedged. 12 As at 31 December 2015, total USA domiciled equity assets was $342.5b of which $101.3b (30%) was through direct investment, equity and investment fund share and $241.1b (70%) was through portfolio investment, equity and investment fund share. Table 2: Levels of foreign equity in the USA
13 United States dollar denominated equity assets are measureable and also exist in dollarised states. Sovereign states which use the United States dollar as primary currency are the British Virgin Islands, East Timor, Ecuador, El Salvador, Marshall Islands, Federated States of Micronesia, Palau, Panama and Turks and Caicos Islands. At 31 December 2015, total equity assets in the dollarised states was $10.2b of which $8.0b (78%) was through direct investment, equity and investment fund share and $2.2b (22%) was through portfolio investment, equity and investment fund share. Table 3: Levels of foreign equity in USD dollarised state
USD invoiced receipts and payments from trade 14 As mentioned earlier, natural hedges are created when payment obligations and/or receipts are at least partially offsetting to mitigate the effects of exchange rate fluctuations. 15 The United States dollar invoiced receipts from trade were $204.8b in the calendar year ending December 2015, with the largest contributing export commodity in United States dollar being crude material, inedible, except fuels at $77.4b, followed by minerals fuels, lubricants and related materials at $58.8b. The highest levels in United States dollar invoiced receipts from trade were $222.8b in the calendar year ending December 2014 with the largest contributing export commodity in United States dollar being crude material, inedible, except fuels at $93.7b. In the calendar year ending December 2009 the largest contributor to the United States dollar invoiced receipts from trade of $154.9b was minerals fuels, lubricants and related materials at $52.2b, followed by crude material, inedible, except fuels at $47.4b. In the calendar year ending December 2010 crude material, inedible, except fuels surpassed minerals fuels, lubricants and related materials as the largest contributor to United States dollar invoiced receipts from trade. Table 4: Exports invoiced in USD
16 The United States dollar invoiced payments for trade were $151.7b in the calendar year ending December 2015, with the largest contributing import commodity invoiced in United States dollar being machinery and transport equipment at $45.4b, followed by minerals fuels, lubricants and related materials at $28.6b. In the calendar year ending December 2009 the largest contributor to the United States dollar invoiced payments for trade of $103.8b was machinery and transport equipment at $28.4b, followed by minerals fuels, lubricants and related materials at $23.4b. Between 2009 and 2015 imports of machinery and transport equipment invoiced in United States dollar increased by $16.9b (62%) while minerals fuels, lubricants and related materials invoiced in United States dollar increased by $5.2b (22%). Table 5: Imports invoiced in USD
17 In the calendar year ending December 2015, the United States dollar invoiced receipts fortrade were $204.8b while the United States dollar invoiced payments for trade were $151.7b, effectively hedging all USD invoiced payments leaving a total leaving $53.1b of United States dollar invoiced receipts from trade exposed unhedged to fluctuations in exchange rate. USD denominated receipts and payments from investment income 18 Similar to receipts and payments from trade a natural hedge can exist for receipts and payments of investment income. 19 Credits and debits of investment income information collected by the ABS are recorded in Australian dollars. These values are used as proxies to generate United States dollar exposure values. In order to accurately measure investment income in United States dollar requires recording of income in USD as income is accrued. 20 Income credits from investments in the USA were $9.6b for the calendar year ending December 2015. Income credits on portfolio investments assets contributed $8.6b of which $5.5b was from investment income on equity and investment fund share and $3.1b was from interest. Table 6: Income receipts on Australian investments in the USA
21 For the calendar year ending December 2015, Income debits to the USA on investments in Australia was $22.5b, of which income debits on portfolio investment liabilities was $13.2b and income debits on direct investment liabilities was $8.2b. Debits of income on equity and investment fund share were $12.1b and debits of income on interest were $9.3b. Table 7: Income payments on USA investments in Australia
22 The exposed net payments of investments income to the USA was $12.9b for the calendar year ending 2015. 23 The net current account exposure of United States dollar was $40.1b in the calendar year ending December 2015, mainly driven by United States dollar invoiced receipts and payments from trade. FORMALISED HEDGING INSTRUMENTS OF DEBT AND DERIVATIVES Debt assets and liabilities 24 Debt liabilities denominated in United States dollar are a significant contributor to the United States dollar exposure, as at 31 December 2015 it accounted for 68% of total foreign currency liabilities. Results of the Foreign Currency Exposure (cat. no. 5308.0) publication indicate at 31 March 2013 approximately 75% of United States dollar denominated debt securities liabilities was fully hedged using derivatives contracts, and further, with 71% of United States dollar denominated debt securities liabilities the maturities of the derivatives used to hedge against foreign currency risk were matched to the maturities of the underlying debt securities. The Foreign Currency Exposure (cat. no. 5308.0) publication data also suggest that a sizeable share of the foreign currency debt liabilities had natural hedges, where the value and currency composition of some foreign currency debt assets were closely matched to that of liabilities. 25 At 31 December 2015, Australia gross debt assets denominated in United States dollar was $375.4b. Depository corporations held $184.3b in United States dollar denominated loan assets and the other financial corporations held $52.2b in United States dollar denominated debt securities. Of the gross debt assets denominated in United States dollar, 33% was long term, mainly in the form of debt securities from other financial corporations, and 67% was short term, mainly in form of loans from depository corporations. Loan assets held by depository corporations increased $144.1b (359%) to $184.3b in 2015 from $40.1b at 31 December 2009. Table 8: Debt Assets in USD
26 Gross Australian debt liabilities denominated in United States dollar was $734.1b as at 31 December 2015. Gross debt liabilities denominated in the United States dollar for depository corporations was $473.6b, driven by Issuances of debt securities of $305.2b and acceptance of deposits of $128.2b. Gross debt liabilities denominated in the United States dollar for other sectors was $244.6b, driven by Issuances of debt securities of $132.6b and drawing of loans of $100.2b. Of the gross debt liabilities denominated in Unites States dollars, 53% was long term, mainly in form of debt securities issuance from depository corporations and 47% was short term, mainly in form of debt from depository corporations. Table 9: Debt liabilities in USD
Net debt and derivatives 27 According to the Foreign Currency Exposure, Australia (cat. no. 5308.0) publication, the notional principle value for derivative contracts in foreign currency was $1,492.1b as at 31 March 2013. 28 After taking into consideration natural hedges, businesses that still find the exposure of exchange rate fluctuations to their balance sheets undesirable often use financial derivative contracts to lessen exposures. The main types of derivatives used in hedging are forward foreign exchange contracts, cross-currency interest rate swaps, and foreign exchange options. 29 The Foreign Currency Exposure, Australia (cat. no. 5308.0) publication found that at 31 March 2013, cross currency interest rate swaps accounted for 65% of derivative contracts involving the purchase of foreign currency and the sale of the Australian dollar whereas forward foreign exchange contracts account for 27%. The publication also found that cross currency interest rate swaps accounted for 48% of derivative contracts involving the sale of foreign currency and the purchase of the Australian dollar whereas forward foreign exchange contracts account for 44%. 30 Foreign debt assets denominated in United States dollar was $436.6b at 31 December 2015 with financial derivatives assets in United States dollar contributing $61.1b, while foreign debt liabilities denominated in United States dollar was $799.6b with financial derivatives liabilities in United States dollar contributing $65.5b. The net exposed United States dollar, after Investments, trade and derivatives was $53.1b. 31 For further information contact Sachind Naidu on (02) 6252 6417 or email balance.of.payments@abs.gov.au. Footnote 1. IMF uses the word dollarised to cover any use of a foreign currency as the main currency of the country. For the purposes of this article ‘dollarised States’ include Sovereign states which use the United States dollar as primary currency these include, British Virgin Islands, East Timor, Ecuador, El Salvador, Marshall Islands, Federated States of Micronesia, Palau, Panama and Turks and Caicos Islands. <back Document Selection These documents will be presented in a new window.
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