On the hedging question, I recommend you familiarise yourself with the dollar milkshake thesis, which Chat GPT has kindly summarised below:

The Dollar Milkshake Theory is an economic hypothesis developed by Brent Johnson of Santiago Capital. It describes the dynamics of global currency markets, focusing on the role of the US dollar and its impact on other currencies and economies. The theory is named for its analogy of a milkshake, where the US dollar "sucks up" global liquidity.

Here’s a summary of the key points:

1. Global Liquidity and Central Bank Policies

• Over the last few decades, central banks worldwide have engaged in significant monetary expansion (quantitative easing, low-interest rates) to stimulate their economies.
• This created a "milkshake" of liquidity—a pool of capital sloshing around the world in search of returns.

2. The US Dollar's Unique Position

• The US dollar is the world’s reserve currency, meaning it's widely used for international trade and finance.
• Many countries and corporations outside the US hold debts denominated in dollars, requiring them to obtain dollars to service those debts.

3. The Dollar as a "Straw"

• Brent Johnson likens the US dollar to a straw that "sucks up" this global liquidity.
• During periods of economic uncertainty or crisis, global investors seek safety in US assets (e.g., Treasury bonds) and the dollar strengthens. This creates a "short squeeze" on the dollar as demand rises.

4. Ripple Effects on Other Economies

• A strong dollar makes it more expensive for other countries to service their dollar-denominated debts.
• This can strain weaker economies, leading to currency devaluations and financial instability in emerging markets.
• Paradoxically, while a stronger dollar can hurt global economies, it often benefits the US relative to others.

5. Long-Term Implications

• The theory suggests that as the dollar strengthens, global economies face increasing pressure, potentially leading to a cycle where foreign currencies weaken further, and the dollar grows even stronger.
• This cycle could ultimately lead to significant economic disruptions worldwide, including defaults in emerging markets.

Critiques of the Theory

• Critics argue that the theory underestimates the ability of central banks and countries to de-dollarize and diversify their reserves.
• Others point out that excessive dollar strength could harm US exports and slow domestic growth, creating a feedback loop.

The Dollar Milkshake Theory highlights the interconnectedness of global finance and the outsized influence of the US dollar, especially in times of economic stress.

The issue with hedging is it comes at a cost, which is a drag on returns, and the US dollar will typically weaken against the AUD when the global economy is chugging along nicely in goldilocks / reflation mode, where liquidity is high. During these periods, the NASDAQ 100 has, and likely will, continue to outperform the ASX, significantly outweighing currency risks anyway. In times of stagflation, like now, as well as deflation, the USD will strengthen against the AUD. In these times, the NASDAQ 100 will underperform, but the hedge will negate the upside of the devaluing AUD.

One thing to also be aware of, is the demographic decline of our largest trading partner - likely to weigh on the AUD for some time.

I don't hedge at all. But I do adjust my NASDAQ 100 position according to macro environment, switching between NASDAQ 100 and USD (to negate AUD deval. risk in stagflation/deflation regimes).

Note the DXY Index has been i along term upwards trend since the GFC. This unlikely to end until the world de-dollarises....

@TKQLD As i have disclosed previously, i have about 30% of my portfolio in international stocks. About 95%, maybe more, of my effort, goes into stock analysis, not currency. i look over my portfolio for irrational exuberance since we have had two +20% years in US. I am unwilling to go up the risk curve at this stage, (unprofitable, ultra high valuations, big story stocks), i am looking at two things whether the companies i hold can weather whatever is thrown at them, so strong b/s and strong FCF, and secondly, some valuation support exists. my conclusions are that there are pockets of extreme overvaluation in the US but it is not endemic. so de-risking rather than exiting or reducing. as far as FX is concerned, imho, it is the most difficult thing to forecast compared to stocks and bonds. yes, 62c is lowish, maybe new money i would hedge but i don't consider fx the major risk, compared to stock /industry risk. hope that is of some assistance.

FX always makes my brain break... so many moving parts!

I read this article this morning about 'fiscal dominance' and its relevance to the USD as a reserve currency.

tl;dr - fiscal dominance means government spending and deficits drive the economy more than monetary policy, especially with federal debt and spending at current levels. The USD’s reserve status props it up, but long-term deficits risk eroding its value.

It’s a relative game too -- what other major trade partners do matters.

I suspect we’ll see some mean-reversion in the short to medium term... but who knows!? Personally, I think FX hedging often hinders more than it helps over the long run.

With AUD trading around -3 standard deviations from average, I feel there is a strong argument for currency hedging US positions.

Its hard to say with any certainty the direction.... probably the USD will track a bit higher initially with trump policies and persisting inflation / rates, and without a return to resources-driven exports (ie Chinese growth), the Aud will probably languish.

Evidence is that in the long term, currency fluctuations will even out and hedging is irrelevant... but over the medium term it may be useful, esp with AUD so low. The hedged versions of IVV and VGS (not sure about NDQ) are only a few basis points more expensive than their unhedged pals, which seems a small price to pay for peace of mind.