Manufacturing importers need to be mindful of the weakening Australian dollar and according to finance experts, should expect it to keep falling this year against its US counterpart. Over the past six months, the AUD has fallen more than 9.5 per cent, a significant drop from the highs of 0.81 in January. While this may be good news for exporters, a low AUD/USD will inevitably raise input costs for manufacturing tools and machinery.
Australian currency markets are directly impacted by the performance of the US economy, which is currently exceeding expectations. Unemployment levels in the US are at an 18- year low, currently sitting at 3.8 per cent, and inflation is sitting just above 2 per cent. Initial jobless claims continue to make new lows and wage growth is steady – all strong signs for their economy.[1]
In addition, the China/US trade war is playing havoc with markets and investors are more likely to consider shifting to the safe-haven assets available, such as gold, should tensions escalate.
Joe Donnachie, Corporate Foreign Exchange Specialist at WorldFirst said, “For the remainder of 2018, the AUD is predicted to vary between 0.70 and 0.75 US cents. This enhances the need for import businesses to lower foreign exchange costs and increase certainty on fluctuations.
“In order for businesses to protect against AUD volatility, hedging strategies to budget for future costs should be strongly considered.”
International money transfer providers, like WorldFirst, offer various solutions, such as forward exchange contracts and firm orders, which help businesses safeguard against market fluctuations.
Forward contracts
A forward contract is an agreement where a business, or an individual, can buy a particular volume of currency at an agreed exchange rate, to settle at a future date.
Forward exchange contracts can be used if:
- There is a concern about unpredictability of markets resulting in the AUD losing value
- When a business has an invoice to pay in a foreign currency, however, the due date is in the future
- Business owners, or individuals, want certainty around a required amount of foreign currency
- A currency is particularly high, businesses can take advantage of the higher rate and lock it in immediately
- When a business sets its budget rates and cannot take the risk of the currency moving against them
- When profit margins are tight and the ability to adjust product pricing is not an option
WorldFirst allow the desired exchange rate to be locked in for up to two years and require a small initial deposit, ranging from 3 per cent to 10 per cent – depending on the length of the contract.
Firm orders
If businesses know the rate they want and don’t have time to keep tabs on what’s going on, WorldFirst will monitor the markets for them and book it on their behalf.
Being on the front foot ensures businesses get the best possible deal or protection if the markets move against them.
To find out more about how to safeguard international money transfers from market volatility, speak to a WorldFirst currency specialist today on 1 800 835 506 or visit the website worldfirst.com.
Disclaimer: These comments are the views and opinions of the author and should not be construed as advice. You should act using your own information and judgement. Whilst information has been obtained from and is based upon multiple sources the author believes to be reliable, we do not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute the author’s own judgement as of the date of the briefing and are subject to change without notice. Please consider FX derivatives are high risk, provide volatile returns and do not guarantee profits. We have no commercial affiliation with any organisation or commercial interest regarding the venues mentioned in this article. The information is only provided as gathered and should be verified before, using your own judgement.
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[1] US Bureau of Labor Statistics, May 2018 https://www.bls.gov/news.release/pdf/empsit.pdf