RiskFX Risk/CLSCurrency snakes and ladders dent corporate earnings

Currency snakes and ladders dent corporate earnings

A stronger US dollar contributed to currency headwinds that cost companies nearly US$37bn in the fourth quarter of 2015, reports FiREapps.

Currency fluctuations, primarily a stronger US dollar, cost publicly traded companies at least US$37bn in the fourth quarter of 2015, according to the latest study by foreign exchange (FX) consultant FiREapps.

A total of 409 companies – 357 out of 850 polled in North America and 52 in Europe – reported negative currency impacts in Q4 of 2015, said FiREapps. The North America total was up 65% on a year earlier.

Not every company actually quantified the damage, but for those that did the total quantified negative currency impact for the quarter was US$36.85bn – US$33.94bn in North America and US$2.91bn in Europe – the largest quarterly impact seen to date.

The Q4 total was more than 50% up on Q3 2015 and more than 80% higher than for Q4 of 2014. FireApps said the continued strength of the dollar against most global currencies has made this cycle of foreign-exchange (FX) headwinds longer and even more pronounced than the euro crisis nearly four years ago. Although the negative impacts were sharply higher for the middle two quarters of 2012 they quickly returned to prior levels.

For the four quarters of 2015 combined, the total reported negative impact was US$112.04bn. Additionally, Q4 2015 “was the fifth consecutive quarter where negative impact was magnitudes above the running average of previous years,” FiREapps said.

The Japanese yen (JPY), which until recently had been one of the most mentioned currencies identified as impactful, has steadily been decreasing every quarter as its volatility lessens, FiREapps reports. By contrast, the Canadian dollar (CAD) is mentioned by more companies as impactful and has become the second most identified currency on earnings calls.

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