Richard Poulton

A new global survey by AFEX, one of the world’s largest non-bank providers of global payment and risk management solutions, shows almost half (45%) of all Australian businesses are expecting an increase in international trade in the year ahead, while the majority do not hedge this risk frequently.

AFEX’s Currency Risk Outlook polled businesses in the United States, United Kingdom and Australia on their perspectives on currency risk and the strategies currently used to manage this – Australian businesses were included in this sample, with 23% in the manufacturing sector and 17% in the retail sector.

According to the survey, the international spotlight remains on the Chinese and US markets, with 35% and 30% of Australian business owners predicting growth in these regions respectively. Other growth regions include Western Europe at 16% and Asia (excluding China, India & Japan) at 12%.

AFEX’s Asia Pacific General Manager Richard Poulton said as 1 in 10 Australian companies currently have between 91 and 100% of its revenue exposed to currency risk, this expected growth indicates managing currency risk is a more important issue than ever.

“While many business owners recognise the challenge in mitigating currency risk, the majority do not regularly employ FX strategies. However, as business owners realise the very real impacts of volatility after the fluctuations of the Australian dollar over the past 12 months, this sentiment is changing,” Mr Poulton said.

While 85% of Australian businesses do not hedge regularly, 46% expect to increase their use of FX strategies in 2014 with the focus on reducing the risk of loss on currency movements (50%), and mitigating downside risk, with some potential upside if currencies move favourably (21%).

Hedging strategies to provide business certainty for SMEs

As a specialist within the small medium enterprises (SMEs) space, AFEX has noticed that while business owners realise the role of currency risk in affecting margins, some remain hesitant in employing hedging strategies because of a lack of deeper understanding and the costs and resources involved.

“Devising a hedging strategy is important, as there are additional and often unforeseen risks for businesses as they increase their presence in global commerce,” Mr Poulton said.

“When you consider that even large cap companies might experience difficulty in managing currency fluctuations, the effect of volatility is compounded for smaller businesses which might not benefit from the same economies of scale.”

In addition to currency volatility (49%), the other key challenges for businesses conducting international trade is finding the right suppliers and customers (25%) and having the ability to make and receive payments (7%).

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