AUD Volatility Compounds Margin Pressure for Exporters - ECA
(7 July 2022 – Australia) Many Australian exporters and importers are seeing their margins eroded, due to factors such as increasing input prices, high freight costs and an unpredictable Australian Dollar (AUD) the Export Council of Australia (ECA) reports.
In the ECA’s latest Global Trade Update, NAB Senior Associate Markets CIB, Tansyn Press, highlights a key potential hazard arising from the significant fluctuations in the value of the Aussie dollar. The Aussie dollar has been volatile, this year alone trading within an eight cent range and since the onset of COVID in 2020 traded within a range of over 20 cents.
Without a risk management strategy, significant currency price movements can place many enterprises transacting in foreign currencies at a risk of financial loss. Depending on the level of volatility, margins could be completely wiped out and it can also disrupt cash flow forecasting.
One common type of hedging tool is a Forward FX exchange contract which allows locking in an exchange rate for a specified value over a defined timeframe. East & Partners Australian Business FX program reveals an enormous shift taking place from FX Options to Forward FX taking place in the middle market, while uptake of hedging tools remains limited among small businesses.
“It may therefore be prudent for Australian businesses to put in place appropriate risk management plans from the time the sale price is locked in, and up to the time the payment is received and/or when the currency is exchanged” commented NAB’s Tansyn Press.
“There are various financial products and strategies to manage foreign exchange risk. These range from simple ‘spot’ and ‘forward’ foreign exchange transactions to more complex options. What might be best for you will depend on your risk appetite, goals and financial needs” Press added.
“As exporters and importers continue to face rising costs from multiple fronts, limiting financial losses from other factors, such as currency fluctuations, could be avoided by having the right foreign exchange risk management strategy."
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