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Australian Corporations Report Elevated Hedging Activity Amid Middle East Conflict, CommBank Says

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Australian corporations are increasing their hedging activity in an attempt to navigate business and investment risks amid uncertainty brought on by the Middle East conflict, Commonwealth Bank of Australia said in its inaugural FX Barometer report Wednesday.

The survey, conducted between Feb. 16 and April 10, shows importers hedging around 80% of their currency exposures and exporters hedging 86%, while businesses that both import and export are hedging around two-thirds of their exposures, reflecting partial natural offsets.

The activity levels indicate that company profits are highly exposed to volatility in the Australian dollar, with smaller businesses more at risk to adverse currency movements compared with larger counterparts, according to the report.

"Large businesses hedge around 80% of their currency exposures, while smaller businesses hedge around 53%, highlighting the higher exposure of smaller businesses to unfavorable currency movements," said Carol Kong, a CommBank economist and currency Strategist.

The report further found that super funds hedge around three-quarters or more of their foreign property and infrastructure assets. More than 80% of super funds plan to raise exposure to foreign exchange in the next three months, while none of the super funds surveyed expect to lower their exposure.

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