RiskFX Risk/CLSAustralian SMEs Prepared for Weaker Currency

Australian SMEs Prepared for Weaker Currency

Australian small and medium-sized enterprises (SMEs) predict that the Australian dollar (AUD) will fall below US$ 0.75 by the first quarter of 2016, according to the East & Partners. The AUD currently stands at around US$0.80.

The firm’s
Australian Dollar Barometer
surveys 868 actively importing and exporting firms, and captures business owners AUD/USD rate forecasts, expected changes in currency exposure and intended hedging plans.

Now in its fifth year, the trending data splits SMEs’ forecasts and hedging intentions by trading focus, business size, state, sector, primary bank and offshore funding focus.

“While the ‘random walk’ of the Australian Dollar routinely leaves the market baffled, business owners frequently predict currency movements with a high degree of accuracy.” said East & Partners’ head of markets analysis, Martin Smith.

“Australian importers and exporters actively hedging their foreign exchange [FX] exposure have demonstrated over an extended period of time that they are excellent currency risk managers.”

A previous survey for the Barometer, conducted in February 2014, found the average AUD/USD rate forecasted for the end of last September was 0.879. The indicative AUD/USD exchange rate actually ended that month at 0.875 according to data sourced by the Reserve Bank of Australia (RBA).

The latest Barometer survey shows importers and exporters predict the AUD/USD to remain near current levels at 0.781 before sliding to 0.749 by the end of Q116.

At the end of 2011, 63.1% of Australian SMEs planned to hedge FX exposures. This figure had increased to 80.4% by this month and is expected to rise as volatility increases and more businesses turn their attention to offshore markets.

“Whether businesses are managing an international supply chain or simply importing productive assets and equipment, treasurers and business owners across Australia have a vested interest in Aussie Dollar movements against the greenback,” said Smith.

“As a result they are inclined to monitor the exchange rate very closely and base their forecasts on their self-generated hedging intentions, drawing upon a wide variety of influential factors.”

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