Building Resilient Portfolios in a Changing Currency Landscape
The US dollar has long been the anchor of the global financial system the currency many Australians grew up believing was the safest place to turn when markets turned turbulent. But recent events and longer-term economic trends suggest that its status as the world’s unquestioned safe haven is shifting.
This newsletter doesn’t tell you what to do with your money. Instead, it aims to help you understand how the global currency landscape is changing and what that may mean for your investment thinking.
How the US Dollar Earned Its ‘Safest Currency’ Reputation
For decades, the strength of the US dollar has rested on a powerful combination of:
- Deep, highly liquid financial markets
- The world’s most influential companies
- Government bonds long viewed as near‑risk‑free
These ingredients helped the US attract around USD 4.5 trillion in net capital inflows over five years, reinforcing its central role in world trade, global debt, and central‑bank reserves. Historically, when markets tumbled, investors typically flocked to the greenback and US Treasuries. For many Australian savers, investing in US‑dollar assets or global funds heavily weighted toward the US felt like a reliable combination of safety and growth.
Why the Dollar Now Looks Less Bulletproof
The market turbulence in 2025 especially the Liberation Day sell‑off highlighted that this old pattern is no longer guaranteed. During that episode, gold surged and several major currencies strengthened even as US equities fell. Investors were no longer automatically seeking shelter in the US dollar.
A few underlying pressures help explain the shift:
1. Large US budget deficits
Despite a strong labour market, the US has been running deficits of around 6% of GDP, levels usually seen during recessions.
2. A persistent current‑account deficit
The US imports more than it exports and relies on foreign capital to fund the gap much of it flowing into government bonds and big technology/AI companies.
3. Rising policy and institutional uncertainty
Political pressure on the Federal Reserve, tensions between government branches, and frictions with allies can undermine trust in a reserve currency.
4. Valuation concerns
The dollar has looked expensive relative to many currencies. When US growth and interest‑rate advantages narrow, this premium becomes harder to justify. For Australians, these shifts matter because currency movements can significantly influence investment returns once converted back to AUD.
Safe Havens: What Still Works And What’s Changing
The US dollar has traditionally shared its “safe haven” status with assets like:
- The Japanese yen
- The Swiss franc
- Gold
- High‑quality government bonds
But research shows that safe‑haven behaviour is conditional, not permanent. For instance:
- Gold behaved reliably during both the 2008 financial crisis and the COVID‑19 shock.
- Yen and Swiss franc performance varied depending on domestic conditions and policy.
The 2025 Liberation Day turbulence reinforced this nuance: gold and several currencies absorbed more of the shock, while the dollar lagged. No single asset not even the US dollar provides protection in every crisis.
Thinking in Baskets, Not Single Winners
The key trend isn’t the end of the dollar’s dominance it remains central to global trade and finance. What’s changing is the assumption that it must always be the obvious safe choice. Many analysts now encourage thinking in diverse baskets of currencies and assets, rather than relying on one “world’s safest currency.”For example, Orbis highlights currencies like:
- Norwegian krone
- Australian dollar
- Japanese yen
These currencies currently offer strong external balances, varied economic drivers, and in some views more attractive long‑term valuations. Gold also retains a notable role as an asset that is no one’s liability often appealing when political or debt concerns intensify.
The Australian Dollar: A Key Piece of the Puzzle
The AUD behaves differently from traditional safe havens. It tends to:
- Rise when global growth and commodity demand are strong
- Fall when risk sentiment weakens
This creates a “double‑edged sword” effect for unhedged global investments, where movements in the AUD can amplify or reduce returns regardless of underlying market performance. Understanding this dynamic helps investors interpret why international investment returns can differ sharply from overseas market headlines.
What This Means for Everyday Investors
For Australian retail investors, the right response is awareness, not urgency.
Key takeaways:
- The US dollar still matters but its safe‑haven status now carries visible caveats.
- Currencies and safe‑haven assets do not behave consistently across different crises.
- Resilience comes from diversification across economies, currencies, and asset types.
- Currency movements can significantly shape your international returns sometimes positively, sometimes negatively.
Understanding these forces helps you stay grounded as the global system evolves.
References
A curated selection of the research underpinning this article:
- Purser, N. Is the world’s safest currency actually the riskiest? Firstlinks, 2026.
- Purser, N. Orbis Investments campaign article, 2025.
- The International Role of the U.S. Dollar – 2025 Edition. Federal Reserve Board.
- iShares by BlackRock Australia. Revisiting currency risk and hedging, 2025.
- Macquarie Asset Management. A guide to currency hedging for global equities, 2024.
- VanEck Australia. Riding the Australian dollar wave, 2024.
- Are safe haven assets really safe? Academic article, 2021.
- Gold as US Dollar Alternative: Monetary System Shift. Discovery Alert, 2025.
- Reserve Bank of Australia. Could Global Fragmentation Change the Way Australian Investors Think About Currency Risk? 2025.