Ozzyarb I suggest you to stick with the AUD base currency and borrow USD for your USD stock position. That way you're fully hedged against your local currency for the size of your position. You will be effectively holding X amount of USD based asset (stocks) and at the same time selling short the same X amount of USD dollar. As a bonus you're also paying a low interest rate (USD) and collecting higher interest rate (AUD). Of course if you convert to USD it could go up and you make money but that's a FX trade by itself. Changing your base currency to USD and buying the same amount in AUD is *exactly* the same as sticking with your current AUD base account and you would be doing two unnecessary FX conversion which would cost your the spread. It is completely identical which base currency you chose. The only difference is the statement report and the process of wire in/out IB. Wiring in/out in USD can be pain in the a$$ for people living outside US because you will need to wire to the Citibank of New York where as with a local base currency account you would be wiring in/out your local Citibank in your own currency (no currency conversion needed, less wiring cost, and also much faster).
Shorting the dollar isn't automatically a 'hedge' because you haven't specified against what. It has to be against something that has a high movement correlation. If he shorts $100K dollars and then the dollar rises 3% he'll have to cover with $103K. The dollar performance may or may not be correlated with his US portfolio. Either way, currency tends to move slowly and the dollar is already pretty low so unless you are only making small gains it might not be worth worrying about.
thanks Laputa..........i think what i will do is do a few small trades in US stocks whilst keeping my AUD base currency and try and see the effects because atm its a bit confusing.........
..my mistake...that does look to be a good hedge. I was thinking about the hedge cost (there must be a fee somewhere) and of course it is in the borrowing interest. (Your AUD cash might earn offsetting interest if it's not working but why not put it to work too.) What are the margin limits when borrowing foreign currencies? (Forgive me if I have some of this wrong. I haven't branched into foreign markets yet although I want to later this year.)