The Australian dollar largely tracked sideways in March this year against the US Dollar, finishing the month with little change at 0.7110.
The reason for this lack of volatility is that both countries are currently reporting similar economic data.
In both Australia and the US, unemployment is continuing to fall, GDP results have been disappointing overall, inflationary pressures remain low and both central banks are either on hold or potentially cutting interest rates.
Looking forward, the only key difference is that the market is expecting Australia to cut rates earlier than the US.
A strong start to April
The AUD received a boost as we began April this year and a new quarter, with news that the Chinese manufacturing industry returned to growth in March.
While this data could be a result of China’s economic stimulus and positive China US trade talks, it could also be incidental given China was taking a break to enjoy the Chinese New Year celebrations in February.
In our view, there are signs that optimism is returning to the Chinese economy. However, a resolution to the trade talks is unlikely to result in a significant bounce in the AUD, as the US, China and Australia will all benefit if a trade deal is done.
Capitalise on opportunities
The current low volatility in currency markets means the price of implementing hedging policies has reduced. There is an opportunity for importers to take advantage of this and hedge with some flexibility, to provide protection when volatility increases and the market breaks out of its current range.
Most exporters, on the other hand, will already be ahead of budgeted rates and can continue to capitalise on the relatively low AUD.
Many larger businesses are currently planning their budgeted rates for July, so it’s important to consider the costs of goods sold for the coming financial year, in order to be well prepared.
Consult the experts
The currency markets are full of risks and opportunities for trading SMEs. Managing these risks and trying to predict market movements can be complex and a distraction from day-to-day business activity.
It’s best to consult with a foreign exchange provider throughout the year who understands your industry and can provide relevant currency market insights and analysis, as well as gauge what market shocks may be around the corner.
James Swerling is Senior Dealer, Fund & Institutional Sales at AFEX, a leading global payment and risk management solutions provider that specializes in cross-border transactions.