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Why exporters must have FX strategies in place in these volatile times

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Why exporters must have FX strategies in place in these volatile times article image

This new financial year is an ideal time for exporters to take an extensive health check of their business.

Many companies have suffered pandemic-related losses – and it’s now time to take stock.

In these uncertain times, currency planning should be high on the priority list, says Michael Judge, Head of Australia and New Zealand at OFX – a specialist in foreign exchange.

Mr Judge predicts the global economy will remain volatile in the months ahead.

“We are entering into an uncertain market with already low interest rates and very high debt levels, he says.

“There is mass uncertainty as to how global economies are going to fare, with elevated debt levels and record levels of stimulus provided by banks and domestic governments.”

Also, the rising Australian dollar (now trading at 0.71c-0.72c against the USD) presents another hurdle for many exporters.

No time for complacency

Exporters must navigate a safe passage forward in these profoundly challenging times, Mr Judge says.

Often, currency planning can “fall into the shadows,” but exporters should now be firmly focussed on this vital area.

It’s no time for complacency, he warns.

“When there is an environment of volatility, it automatically creates uncertainty … and the rising Australian dollar has added more complexity.

“The demand for hedging products has increased substantially.”

Mr Judge says exporters should be aware of FX risk management strategies that are currently available to protect their business’ overall bottom line.

These strategies include:

  • Limit Orders: A tool that allows businesses to book a money transfer at a target exchange rate. Once the rate hits, the transfer is processed automatically.
  • Forward Exchange Contracts: Fixing today’s currency rate for up to 12 months, for a future transfer need to create more certainty on FX costs.
  • Spot Transfers: Book in today’s rate and transfer. This is often exercised in combination with the above strategies, allowing for predictability and flexibility.

Exporters should seek advice from FX experts to work out the best strategies based on the business and its objectives, Mr Judge says.

“To mitigate risk, exporters should partner with an FX specialist to determine your objectives.Michael Judge-Hi-Res

“They can explain the advantages and disadvantages of using different products in different markets.”

Creating exchange rate certainty

Firstly, exporters need to understand the type of risk they are facing, Mr Judge explains.

“When you understand your risks, you can then set strategies and objectives.

“The main aim is to eliminate risk, not manage it – and to offset any exposure an exporter may have in one or multiple markets.

“By using the right products you can create exchange rate certainty.”

When dealing with foreign currencies, Mr Judge urges businesses to considering hedging according to their business needs.

Since the COVID-19 pandemic took hold in March, many of OFX’s Australian corporate clients leveraged currency hedging solutions to help safeguard future profitability.

OFX has seen a 155% increase in the use of hedging products compared to the same period last year.

Register now for OFX webinar

A free webinar is being held tomorrow at 11am to help exporters find effective FX risk management strategies.

OFX is partnering with CPA Australia to give attendees insights into the challenges now being faced in global currency markets.

Mr Judge will give attendees valuable advice on how to manage FX risk and gain cash flow confidence.

Elinor Kasapidis, Tax Policy Adviser, CPA Australia will discuss various taxation issues and COVID-19 stimulus packages (including JobKeeper) to help Australian businesses plan for the new financial year.

To register click here

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