Geoff Steer looks at how fluctuating exchange rates are impacting Aussie businesses and offers some advice on how to protect your business through the highs and the lows.
Many businesses would have been cheering the Australian dollar down as it dropped towards the 90 cent mark relative to the US dollar early this month.
But the dollar sprung back to parity and it seems, for a while at least, that living with a relatively high dollar is going to remain a challenge to many businesses.
We are seeing many stories of struggle due to our strong currency, ranging from manufacturers and exporters, the dairy industry, retail, tourism and the farm sector – the National Farmers Federation says that the dollar’s rise over the last two years has reduced net farming income by approximately $11.5 billion.
Many of these manufacturing and export-related businesses would have started in an environment where the Australian dollar hovered around US70 cents, which it did for around 20 years – so at parity they are dealing with an increase in the local currency of somewhere around 50 per cent.
But the real headache for business comes in the dollar’s fluctuations.
An example of this occurred over the last month, where in a short period of time the currency dipped from approximately USD1.10 down to USD0.94, and at the time of writing is now back up to USD1.02.
What can business do?
Make hay while the sun shines: A currency drop of 10 per cent or more, as seen this month, may open a brief window of opportunity (for example, if you are an exporter) to get a better deal or even just close a deal. Keep an eye on the markets and be prepared to act.
Hedge your bets: Business exposed to fluctuations in the Australian dollar should consider hedging strategies to create certainty around costs and cushion the blow from the currency’s volatility.
Talk to your bank: All the banks have specialists in this field that can explain the options about funding strategies around foreign currency transactions.
Take advantage of the high dollar: Some forecasters think the high dollar is here to stay – so can this become an opportunity for you? For example, outsourcing to overseas companies may be even more attractive for some companies due to the high dollar. We have a client that has recently set up an operation in the Philippines not just due to the dollar but also the ability to get skilled staff.
Geoff Steer is a Founding Partner of Matthews Steer Chartered Accountants. Geoff’s knowledge of taxation matters combined with his financial planning skills enable him to provide a complete financial service for professional, executive and small business clients. Geoff was recently ranked one of Australia’s top 10 financial advisors by the AFR Smart Investor Magazine’s 2011 Masterclass. www.matthewssteer.com.au