As a tumultuous year comes to a close, it’s time to take a look at how financial market movements have, and are indeed – affecting exporters. The Reserve Bank of Australia has steadily raised rates to 3.1% across the calendar year, in reaction to spiralling costs and inflation (7.3%). From the supermarket shelves, to the racks of imported components – this year has been like no other, for many decades. For small and medium sized companies, there have been dramatic effects, that management have had to contend with. The price of financing has of course increased on banking and lending facilities, but the ability to pass on these rises in end product, not so much. Wage inflation alongside a dwindling talent pool for recruitment, has tested us all here in Australia. But the show had to go on, regardless.
An area, oft overlooked is the currency exposure faced by businesses. More often than not, viewed as a by product of international trade, but very rarely approached by SME’s as an area of concentration and planning. And in these chastened times, where every dollar counts, a laser focussed approach is required. With the US Dollar having been the performer of 2022, as the currency of choice in a risk averse environment, it’s important to acknowledge the swings we have seen.
The USD index (a trade weighted basket against major trading partners) has moved 16% across the last 12 months. But switch focus to the Australian Dollar, and that swing is magnified. The Aussie versus the Dollar ( AUD v USD) has moved a full 22.6% from lows seen at .6200 in October to highs at .7600 in April. Being the wrong side of these prices, both erodes exporting sales margin, and importantly restricts cash flow.
So as we prepare for 2023, it is imperative to look at forward hedging our currency (FX) risk, and inserting policies into company articles to mitigate these risks. Planning for CEO’s , MD’s and Finance roles who are growing into one or more exporting countries, is prudent and avoids the pain that financial market risks can garner. Ultimately, improving bottom line from prudent FX management yields results.
Using FX Forwards and FX Options, with experienced advisory and good pricing and timing is how we help. Seeking guidance on ‘how to’ makes sense.