How to manage risk of margin pressure from Australian Dollar fluctuations

Many Australian exporters and importers are seeing their margins eroded, due to factors such as rising input costs and challenges […]

By

Many Australian exporters and importers are seeing their margins eroded, due to factors such as rising input costs and challenges with drawn-out supply chains.

Another potential hazard arises from the increased volatility in currency markets, in particular the value of the Australian Dollar relative to the United States Dollar.

This year alone, it has traded within an 8-cent range or dropped 10% in value since the earlier part of 2022.

Without a risk management strategy, this significant up and down movement can put many businesses transacting in foreign currencies at a risk of financial loss. Depending on the volatility, business margins could be completely wiped out. It can also disrupt businesses’ cash flow planning.

When making or receiving payments in a foreign currency, it may therefore be prudent for Australian businesses to implement appropriate risk management plans from the time the sale price is locked in, and up to the time the payment is payable or receivable.

There are various financial products and strategies to manage foreign exchange risk. These range from simple ‘spot’ and ‘forward’ foreign exchange transactions to more complex options. What might be best for you will depend on your risk appetite, goals, and financial needs.

Our accredited Financial Market Advisers are there to provide guidance and personal advice to support your business needs in this period of heightened volatility.

For an in-depth discussion on foreign exchange exposures and how best to manage them, speak to a NAB Markets specialist on 1300 960 355.

The information provided in this article is intended to be of a general nature only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on the information in this article, National Australia Bank Limited (ABN 12 004 044 937, AFSL and Australian Credit License 230686) (NAB) recommends you consider whether it is appropriate for your objectives, financial situation and needs. NAB recommends that you seek independent advice and obtain and consider the relevant Product Disclosure Statement or other disclosure document, before acting on any information in this article, including whether to acquire or to continue to hold a product or service mentioned.