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5 tips to minimise the impact of AUD movements on your business
When the Dow Jones plunged 4.6 per cent this month, the Australian dollar suffered its worst weekly fall against the USD since November 2016, down to 0.7809. With foreign exchange markets constantly fluctuating, movements in the market – positive or negative – can have significant effects on costs for a business with international suppliers, customers or partners.
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A key part of doing international business is exchanging money between currencies, but a small difference in rates can hit margins or increase costs for businesses without warning, Patrick Liddy, Head of Foreign Exchange at WorldFirst (worldfirst.com.au) explained.
“The volatility of foreign exchange markets can leave local online sellers and importing businesses paying overseas suppliers exposed if they are not actively managing the risks,” he warned.
“While some businesses protect themselves against the uncertainty of foreign exchange markets by locking in their exchange rate for a period of time, others regard the fluctuating market as a profit opportunity. It’s important all businesses develop their own individual strategy to help navigate changes in our dollar.”
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Is your business at risk of a volatile Aussie dollar? Here’s 5 tips to minimise the impact on your bottom line.
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Last year, the AUD to USD exchange rate endured a bumpy ride, losing almost four cents over the course of a month when North Korea test-fired its first intercontinental ballistic missile on 28 November. That equates to a loss of over $2,000 on a $500,000 international money transfer, so a good currency exchange specialist can advise whether an exchange rate is adverse or favourable considering the circumstances, and help you make the right call on when to delay payments or bring them forward.
2. Set a budget rate range
If you buy or sell overseas, it’s best to incorporate a budget rate range, or contingency, in your forecasts to prepare for shifting exchange rates. This will help in calculating more accurate expected revenue figures and minimise the impact on income.
3. Beware of honeymoon rates
Some money transfer providers and banks offer introductory or ‘honeymoon’ rates with ‘zero’ commission, to win business. These rates only tend to last for a certain period of time before increasing to a rate that can be higher than average, costing a person more in the long run.
4. Fix or hold your rates
To avoid the uncertainty of foreign exchange markets, it is advisable to look for a transfer service that allows you to fix your exchange rates for a set period of time. While this can lower risks, it also can prevent a person from taking advantage of favourable exchange rate movements in the future. Some money transfer services will allow you to lock in a future transfer for up to two years at a specific rate, where the transfer is not made until that rate has been reached in the market.
5. Avoid using banks
Banks often impose a heavy margin above the actual or market exchange rate (known as the interbank rate). By using a money transfer specialist instead, $200-$250 could be saved for every $5,000 on a typical AUD to USD transfer. Money transfer specialists such as WorldFirst offer exchange rates that are up to seven times cheaper than the big four banks, and its currency specialists develop tailored strategies to suit the individual needs of business clients.
