Small businesses increase hedging to lessen high AUD impact
(20 March 2012 – Australia) The continued strength of the Australian dollar has had a marked impact on borrowing intentions of Australian exporters according to the latest Commonwealth Bank (CBA) Aussie Dollar Barometer.
The report showed that 41 percent of exporters reported the high Australian dollar had decreased their appetite to borrow; by contrast 55 percent of importers have increased borrowing.
The high dollar appears to be having a more defined effect on the borrowing appetite of smaller businesses over large businesses. A net 25 percent of businesses with turnover of A$5-25 million indicated they were less likely to take on additional debt.
At the other end of the spectrum, a net 14 percent of businesses with annual turnover above A$500 million revealed the high Australian dollar was increasing their appetite to borrow.
The Barometer tracks importers and exporters’ exposure to the Australian dollar, their expectations for trading levels and hedging plans for managing foreign exchange risk.
According to CBA currency strategist Joseph Capurso, the latest findings were consistent with recent Barometer reports that have shown how businesses were being forced to adapt to a more prolonged shift in market conditions.
"Over past quarters we have seen a marked change in the way export businesses are adapting their operating models, with capital spending plans and workforce size all coming under the spotlight," said Capurso.
"For some time now, a very clear message from the Barometer is that more businesses are hedging to try and control the effect of the dollar on their business. Many businesses are realising that the dollar is likely to stay at these higher levels and that what we are experiencing is not just a ‘flash in the pan’."
The Barometer revealed that since August 2011, only two of the 553 businesses that reported they would hedge did not execute their plans, equating to 99.6 percent of businesses that followed through with their planned hedging activity.
Looking forward, over two-thirds (68 percent) of businesses with annual turnovers of $25-150 million plan to hedge, compared with only 40 percent in July 2010. This remains consistent with this group’s view towards the future performance of the dollar, with respondents on average believing that it will peak at US$1.12 by the end of September 2012.
Most large businesses (those with a turnover of A$500 million and above) believe the dollar will ease in September and end the year at US$1.03. As a result, 70 percent of businesses in this space are planning to hedge, down from 77 percent in the previous quarter.
"The behaviour of many Australian businesses is to still be reactive, rather than proactive when it comes to managing foreign exchange exposure", said Mr Capurso.
"The amount they hedge is influenced by recent movements and volatility of the currency, meaning there appears to be little planning put in place to manage currency risk. Businesses are in turn leaving themselves open to potential future adverse movements in the Australian dollar and may wish to consider taking a more proactive stance towards currency hedging."
The high dollar appears to be having a more defined effect on the borrowing appetite of smaller businesses over large businesses. A net 25 percent of businesses with turnover of A$5-25 million indicated they were less likely to take on additional debt.
At the other end of the spectrum, a net 14 percent of businesses with annual turnover above A$500 million revealed the high Australian dollar was increasing their appetite to borrow.
The Barometer tracks importers and exporters’ exposure to the Australian dollar, their expectations for trading levels and hedging plans for managing foreign exchange risk.
According to CBA currency strategist Joseph Capurso, the latest findings were consistent with recent Barometer reports that have shown how businesses were being forced to adapt to a more prolonged shift in market conditions.
"Over past quarters we have seen a marked change in the way export businesses are adapting their operating models, with capital spending plans and workforce size all coming under the spotlight," said Capurso.
"For some time now, a very clear message from the Barometer is that more businesses are hedging to try and control the effect of the dollar on their business. Many businesses are realising that the dollar is likely to stay at these higher levels and that what we are experiencing is not just a ‘flash in the pan’."
The Barometer revealed that since August 2011, only two of the 553 businesses that reported they would hedge did not execute their plans, equating to 99.6 percent of businesses that followed through with their planned hedging activity.
Looking forward, over two-thirds (68 percent) of businesses with annual turnovers of $25-150 million plan to hedge, compared with only 40 percent in July 2010. This remains consistent with this group’s view towards the future performance of the dollar, with respondents on average believing that it will peak at US$1.12 by the end of September 2012.
Most large businesses (those with a turnover of A$500 million and above) believe the dollar will ease in September and end the year at US$1.03. As a result, 70 percent of businesses in this space are planning to hedge, down from 77 percent in the previous quarter.
"The behaviour of many Australian businesses is to still be reactive, rather than proactive when it comes to managing foreign exchange exposure", said Mr Capurso.
"The amount they hedge is influenced by recent movements and volatility of the currency, meaning there appears to be little planning put in place to manage currency risk. Businesses are in turn leaving themselves open to potential future adverse movements in the Australian dollar and may wish to consider taking a more proactive stance towards currency hedging."
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