The site, ozforex.com.au allows customers to reliably and efficiently manage their foreign currency requirements, with the business planning to take FX mobile in January next year.

OxForex CEO, Neil Helm said: “We’ve developed the new website in response to our customers’ needs, creating a foreign exchange service that is customised and simple to use, while still offering comprehensive FX information.”

The new Android and iPhone apps will enable customers to book international payments and check rates on the go, providing them with the latest exchange rates and market commentary from their mobile phone.

“Earlier this year OzForex achieved a significant milestone in reaching its millionth trade. As we position ourselves for the next million trades, we want to ensure our service provides customers with efficient and reliable access to foreign exchange markets,” said Helm.

The new site features over 200 pages of free foreign exchange data, creating smarter FX services which include live rates, charts, daily market commentary and a user-friendly interface.

Other new features of the website include improved functionality, an information platform and simple navigation through a clean design.

Working in collaboration with Export Finance and Insurance Corporation (EFIC), Travelex is now able to offer eligible SME exporters access to additional hedging facilities with a face value of up to $2 million without the need for a deposit. The increased limits have been made possible through the expansion of EFIC’s foreign exchange facility guarantee which was created with Travelex in March 2010.

Andrea Govaert, EFIC’s executive director SME and Mid Market, said the partnership between EFIC and Travelex is all about helping SME’s. “Our work with Travelex is another way we can work in the commercial market to support SME’s in their export growth,” she said.

Simon Glendenning, general manager Mid Market at Travelex Global Business Payments, said the increased limits are targeted at supporting SME’s with an annual turnover of less than $10 million.

“While many providers have been reducing credit lines for small businesses in the last 12 months, Travelex recognises that now, more than ever, SME exporters need the ability to hedge their sales,” he said. “We are giving SME exporters greater flexibility with their hedging arrangements, providing certainty over the value of their invoices and their profitability over the long term.”

We also here have the spectre of falling retail sales, and the switch to online purchases due to a high AUD and big price variances when buying online.

The market is changing, and changing quickly. There are the emerging economies producing in low cost environments, environmental concerns, growth opportunities moving to new markets in Latin America and Asia, and perhaps Africa once some stability is established.

Historically if you produced a good quality item, found a market, then you had a business model that had some legs. The changes to domestic and international buying patterns and fast emergence of new competitors means that exporters really need to be on top of everything to stay in business. Being able to adapt and meet existing, and even future consumer needs will be an essential for any business. Just look at the market share of Nokia since the iphone and other smart phones hit the market.

We have been insulated by the minerals and mining sector, and escaped the GFC, but changes in consumer preferences, and new competitors will impact on all businesses. And that’s apart from a high AUD.

So to survive, a business has to be as expert and targeted in its marketing, packaging and customer service as it is in production quality.

Australian business has in the main been very good at adapting to changing circumstances. How is your business adapting to global changes? To share your experiences contact petermace@aiex.com.au.

The Reserve Bank of Australia recently released the minutes for its Board meeting held on 3 May when it decided to maintain interest rates at 4.75 percent for the sixth straight month. The minutes offered some insights into the sentiments of the Board which noted that interest rate hikes were likely to be necessary in the future if inflation remains consistent with its medium term target. This is a clearer indication on rates from the Board than has been the case in recent months. While a rate hike would likely push the AUD higher, a rate rise can still not be seen as being imminent largely because of a number of other factors at play. For example, employment data for April was weaker than analysts expected, with the number of people employed in April falling by 22,100. The number of full-time jobs declined by 49,100 whilst part-time employment rose by 26,900.

IMPACTS:

Although the weaker than expected employment data initially led to a slight weakening of the AUD, it has since recovered. The currency continues to trade in the region of USD1.05.

The Board’s minutes suggested it will act on interest rates for the interests of the overall economy – indicating a willingness to increase rates if, as is occurring now, some parts of the economy outperform others and push up inflation. The resources sector is a stark illustration of this with overall employment in Queensland and Western Australia increasing by 22,900 – thanks largely to the mining boom. This compares to a decline of 56,200 jobs in New South Wales and Victoria.

Market expectations are for at least one, and possibly two, rate increases before the end of the year. With the currency markets already pricing in one rate rise, further clarity on a second rise would push the AUD higher against most currencies, especially the US dollar. Eyes will be on the next release of inflation and jobs data which will play a significant role in the timing of future rate rises.

CONSIDERATIONS:

The Australian dollar continues to trade in record high territory. This is largely due to the benefits the country is enjoying from the ongoing growth of the vast Chinese economy and its demand for Australian resources. While the official cash rate is a key driver of the strength of the AUD, one of the most significant reasons for the strength of the dollar at the moment is not domestic—it’s the weakness of both the Euro and the US dollar. As such, for Australian businesses, watching the RBA Minutes is probably less important than tracking the relative strength, or weakness of the US dollar and the major European economies. Adding further complexity is the AUD’s popularity with currency speculators. Much of the upward movement in the AUD in recent times has actually been driven by sentiment and the actions of currency traders who are looking to make short terms gains. As the currency’s popularity with speculators has increased, it has become partially decoupled from the fundamentals that typically guide currency movements. Being a favourite of speculators means our currency is especially prone to substantial volatility and corrections. A correction in the currency could occur as soon as market participants lose their appetite for riskier investments and sell their AUD holdings in favour of safer investments.

In this environment, volatility is likely so businesses need to ensure that they properly manage their currency risk. A sudden downturn in the Australian dollar would have a significant impact on importers who, if unhedged, would find themselves paying more for imported products and raw materials. Likewise, exporters who are hedged at current levels would be locked in at a higher exchange rate than necessary.

Press reports in the Sydney Morning Herald about Brown Brothers closing down their office in London, Casella Wines profit reportedly dropping by up to 70 percent and it’s not all good news out there for Australian SME business, particularly those who have taken on the challenge of export. The high Aussie dollar is undoubtedly having a significant negative effect on some sectors of Australian business and not only impacting their overseas sales but hitting domestic sales as well.

This week I was speaking to one of my colleagues who produces world’s best practice fittings for the marine industry. After telling me that he has never seen export so bad he went on to say that competition from United States in Australia was intense, to the point that like products are landed in Australia 45 percent cheaper than the local product. On top of that Australian made product is being sourced on the internet ex USA, with no GST, cheaper than the best wholesale price in Australia.

I was recently asked by the press to do a television interview on the impact of the high Aussie dollar on exports. They wanted a five second grab. After talking to them for about 15 minutes the interviewer said, “I didn’t think it was such broad topic, it’s really quite interesting”. Well, it is a broad topic and, while interesting for some it’s simply devastating for others, particularly SME companies who have limited resources, a house and a family.

What concerns me is that over the last 10 years Australia has invested considerable amounts of money developing our export culture, encouraging more companies to “give it a go” and expanding the export horizons of busineses already engaged in international trade. Many of the results have been outstanding; factories have been build, technologies developed and jobs created. Some of these companies today are struggling simply because the dollar, the GFC and cost of doing business is rapidly reducing their ability to be internationally competitive.

As a result existing exporters have seen reduced sales, tighter margins, loss of market share and in some instances complete loss of markets. It’s a tough time being an established exporter and often the first reaction is denial—“we’ll just ride out this period and hope that it gets better”. Is it possible to think strategically in the light of this pressure? The key is to explore a range of options and determine what’s right for your business, some options are as follows:

Strategic relationships: Now’s the time to review your local sales ‘partners’: distributors, agents or others. Are you working together to deal with the exchange issue—are your local partners the most effective, are they savvy marketers building your brand?  Now may be the time to do the reality check and take an objective look at the effectiveness of your in-market support.

Alternate entry-strategies. Now may also be the time to review your market entry model—is it serving you well, is it the model of the future? Do you need to think about manufacturing—assembling or down filling in the local markets to take advantage of reduced freight and probably less expensive inputs? Are there too many intermediaries in your supply chain? Can you eliminate a level—perhaps by investing in your online resources and outsourcing fulfilment? Time to set-up your own sales/distribution office and control the distribution costs?

Invoicing currency: If you invoice in AUD now’s the time to think about local currency invoicing—yes your margin will be impacted by the moving exchange rate—but your response to that is then under your control. Regardless of whether you invoice in AUD or local currencies, the effect of the exchange rate movements will either impact your margin or it will flow into the end-user price of your products.  The importers of your product—distributor-agent-end user—are already building a ‘hedge’ or a margin on top of the current exchange rate to ‘protect’ them from short-term exchange movements. It is better for you to control that hedge factor and give them certainty in invoicing in their currency—this gives you greater control over the end-user pricing.

For companies just starting on the export journey all strategic market entry options are open. That starts with researching your market and determining what is your value proposition—the true differentiation of your product or service. Then you look at the best strategic model that suits your business—objectives and resources.

There are many ways to respond to the challenge of a very strong dollar. If export is key to the growth of your business, then perhaps it’s time to review your export strategy?

RBA maintains interest rates at 4.75 percent; no sign of imminent rate rise

EVENT:

The RBA decided at its meeting last week to keep interest rates steady at 4.75 percent for a sixth consecutive month. Mirroring comments after recent meetings, the RBA repeated its belief that its current mildly restrictive monetary policy stance continues to be appropriate.

IMPACTS:

The announcement initially led to the AUD easing off against the USD before subsequently making up ground to finish trading at $1.0906 – approximately the same level as just prior to the announcement.

The RBA continues to give no indication that an interest rate rise is imminent in the next few months. The market was clearly hoping for more of an indication from the RBA as to what direction monetary policy was likely to take, but was left disappointed. Many in the market continue to believe that at least one, and quite possibly two, interest rate rises will occur before the end of the year.

CONSIDERATIONS:

The RBA noted that employment growth looks set to slow but continue and that skills shortages are only significant in primarily resources related sectors. Continued gradual growth in employment will help to delay future interest rate rises.

On the flip side of the coin, the RBA noted that wage rises have returned to levels seen before the economic downturn. This, together with increases in private investment, could lead to inflationary pressures. However, continued caution in household spending and borrowing, coupled with individuals increasing their savings as a proportion of income, will help to mitigate these inflationary increases. The continued strength of the AUD, especially if it continues to trade above parity with the USD, will go some way to further delaying interest rate rises.

The AUD continues to be dangerously overbought. It is unlikely that the Aussie will plummet quickly against the USD, but the question is whether it will continue to strengthen or hover in its current range. We would expect the AUD to trade within a band between $1.03 and $1.12 over the medium term.

The timing of significant economic recovery in the U.S. will be a key determinant in the fortunes of the AUD against the USD. Noteworthy improvements in the U.S. economy are unlikely to occur before Q3 or Q4 of this year. A key reason for the Aussie’s strength against the Greenback is the weakness of the USD and the overall U.S. economy rather than the underlying strength of the Aussie itself.

The upcoming release of retail sales data this Thursday and labour face data next Thursday will help to paint a better picture of future monetary policy direction.

Consumer Price Index rise more than expected pushing the AUD to another record high for against the USD; Bernanke comments overnight indicate no imminent tightening of US monetary policy

EVENT:

The Australian Bureau of Statistics released Consumer Price Index (CPI) data for the March quarter yesterday, showing a headline rate increase of 1.6 percent which exceeded market expectations of a 1.2 percent rise.

IMPACTS:

On an annualised basis, inflation is now above the RBA’s target inflation range of two-to-three percent which will ensure the RBA keeps an especially close eye on inflation data for the June quarter. The market is currently pricing in at least one, if not two, interest rate rises before the end of the year.

The CPI data added fuel to the AUD, which hit yet another record post-float high against the USD, reaching 1.0852 early Wednesday.

CONSIDERATIONS:

The RBA has consistently stated that it looks to the medium term when establishing monetary policy settings. With this in mind, it could well hold off raising interest rates at its meeting next Tuesday. If further inflationary pressures are revealed in June quarter data, the RBA may then be more inclined to act.

Short-term factors clearly played some role in the higher than expected CPI figures. Instability in the Middle East and Northern Africa helped fuel higher oil prices whilst natural disasters in Queensland put upward pressure on fruit and vegetable prices. Rises in fruit, vegetable and fuel prices accounted for 0.7 percent of the 1.6 percent rise in inflation. Excluding the impact of these commodities, annualised inflation remains within the RBA’s target range, suggesting that an immediate interest rate rise next week may not be on the cards.

Confidence in the USD is lagging across the board with all major currencies performing well against the greenback. Even in light of the recent natural disaster in Japan, the JPY is still performing relatively well against the USD. Collectively, this suggests that any marked decline in the AUD/USD exchange rate is unlikely to occur until the US economy improves significantly.

Comments overnight by US Federal Reserve Chairman Ben Bernanke indicated that there would be no tightening of monetary policy in the short term. This led to the Aussie reaching another record high of 1.0879 against the USD earlier today. Any change to US monetary policy would lead to a narrowing of the interest rate differential between the US and Australia and create a downward force on the value of the Aussie.

In contrast, Standard & Poor’s recent decision to place the debt of both the United States and Japan on a negative watch and the continued uncertainty surrounding Greek and Irish sovereign debt highlights the economic uncertainties at play in much of the rest of the world. A deterioration in the debt situation in the US, Japan or Europe could act as a catalyst to risk aversion and a move away from the AUD.

Minutes of RBA Board meeting reflect confidence in economic recovery

EVENT:

The minutes of the RBA Board meeting on 5 April were released this week and noted that while interest rates are currently slightly above average levels, they remain appropriate given the outlook for the economy and its desire to keep inflation within a medium-term target range of two-to-three percent.

IMPACTS:

The minutes reinforced market sentiment that an interest rate hike was unlikely before the fourth quarter, if at all this year. With the market already pricing in one rate rise this year the release of the minutes had little immediate impact on the AUD.

The AUD continues to trade in unchartered territories against the USD reaching a high of 1.0585 so far this week. While there are no obvious forces holding the AUD back, there remains potential for natural profit taking to occur at these elevated trading levels as market participants pause to consider their next steps. A short-term correction of two-to-three cents is a possibility.

CONSIDERATIONS:

Recent news of Standard & Poor placing U.S. Government debt on a negative watch and the continued uncertainty with the Greek debt issue highlights the economic uncertainties at play in much of the rest of the world. Any deterioration in the debt situation in the U.S. or Europe could act as a catalyst to risk aversion and a move away from the AUD. The market is already showing signs that risk aversion is setting in with safe haven assets like gold topping US$1,500 for the first time and silver reaching a 31-year high this week.

Any tightening of US monetary policy with a rise in interest rates could also weigh down the AUD as the differential between Australian and US interest rate settings narrows. The timing of such an interest rate rise is uncertain.

Whilst the strong AUD has created problems for exporters, such as the manufacturing and tourism industries, importers too need to be vigilant. In such a fluid situation, importers need to be prepared for all contingencies including the real possibility of the AUD running out of momentum and retreating against the USD.

With the overall theme of effectively managing foreign exchange for businesses of all sizes and industry sectors, topics will include hedging, forward rates, interest rate differentials and spot rates. Attendees will also have the opportunity to network with other companies involved in international trade.

The lunch will be held 12-2pm at the Marigold Restaurant, 299-205 Sussex St, Haymarket, Sydney. Cost is $20 for AIEx members, $40 for non members, $200 for a table of 10.

Register now at www.aiex.com.au/aiex-events/events-calendar or contact Lisa McAuley at lisamcauley@aiex.com.au or call 02 8243 7400.

National FLEx program seminars

Other AIEx events in the Future Leaders in Export (FLEx) progam this year are held on the first Thursday of each month across Australia.

7 April Getting it Right from the Start—the Distribution Agreement
5 May The Real Commitment—Joint Ventures for International Business Success
2 June Gaining a Competitive Advantage Through Market Research
7 July Switch On the New Marketing
4 August Optimisation & Analytics—Putting Your Website to Work
1 September And You Thought the Australian Tax System Was Complicated
6 October International Transit: Risk and Mitigation
3 November Managing Foreign Currency Challenges to Protect Your Profits

Please contact your AIEx state manager for more information about participating in the program.