The Australian dollar (AUD) continued its downward slide in September and the local currency has since hit a 32-month low of 0.7042.
Currency investors continue to favour the US dollar (USD), which is being held up by a buoyant US economy and a benchmark interest rate that was recently raised for the third time this year to 2.25%.
The AUD is looking less attractive as the potential for a US-China trade war, falling commodity prices and a central bank that seems reluctant to move the official cash rate above 1.5% weigh on the local market.
A critical point
Until the Reserve Bank of Australia signals that the next move will be up we are likely to continue to see the AUD struggle and the big rallies we have seen in the past are unlikely.
The coming month will be an interesting one, as currency traders wait to see if the AUD will break below the critical 0.7000 mark.
For importers, the key is not to sit on the sidelines and hope the market recovers. It is important to note that 0.7000 is the costed rate for many importers. For importers who have not already done so, they may still have the opportunity to hedge above that costed level with a degree of optionality.
Conditions are more positive for exporters, many of whom will be looking to lock in standard forward contracts to take advantage of the current levels.
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 an Account Manager at AFEX a leading global payment and risk management solutions provider specialising in cross-border transactions. www.afex.com