NAB Business Survey – AUD Insights
The NAB Quarterly Business Survey provides a rich source of information about Australian business, their behaviours and the environment in which they operate. In addition to questions around sales, profitability, employment and the like, one focus of the Survey revolves around currency markets.
- The NAB Quarterly Business Survey provides a rich source of information about Australian business, their behaviours and the environment in which they operate. In addition to the well-known questions around sales, profitability, employment and the like, one focus of the Survey revolves around currency markets.
- In particular, firms are asked about how they are being affected by the level of the AUD, and what strategies they have employed to address currency risk. In regard to managing currency risk, the survey delves a little deeper into the currency hedging strategies employed by business to get an idea of the degree of FX exposure they have, the time period they are hedged for and whether currently hedged positions are favourable or not.
- Despite the degree of AUD depreciation since mid-2014, there is actually a higher proportion of firms in the survey indicating a negative impact from the current level of the AUD (around a third of firms). While this is counter to the idea that a lower AUD will aid the economy’s transition through the end of the mining boom, this appears to largely reflect significant variation in the impact across industries – driven primarily by a sharp deterioration reported by the wholesale sector, and to a lesser extent the retail and transport sectors . Other key sectors of the economy (such as services), appear to be largely insulated or are better off from the depreciation.
- As the AUD has depreciated, firms appear to have become even more focussed on hedging and import substitution, as opposed to greater cost cutting (e.g. downsizing). By far the most common strategy remains currency hedging. Hedging behaviours tend to vary notably between exporters and importers in the survey. In particular, currency depreciation over recent years appears to be having the greatest impact on exporter hedging, with these firms electing to hedge a growing share of their exposure (32% in Q3 2015 compared with 24% in Q1 2013). Yet, at the same time they are also reducing the average hedge tenor (almost 8 months in Q3 2015 compared to almost 10 months in Q1 2013) (see page 4 for further discussion). In contrast, importers have kept a fairly constant share of their FX exposures hedged in recent quarters (35%), although this is below the levels seen back in 2013 (around 40%).
- Interestingly, larger export firms have increased their FX exposures that are hedged markedly in recent quarters, to over 40% in Q3 2015 (compared to 27% in Q1 2014). Medium exporters have pulled back after a big increase over 2014. The proportion of FX exposures hedged by importers has been relatively steady across all firm sizes in recent quarters (see p8).
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