Currency hedging and foreign currency accounts are among the steps exporters are taking to maintain margins in the face of the current spike in the Australian dollar.
The dollar has soared above US98c today and looks set to reach parity with the US dollar in the weeks ahead as economic and financial conditions there worsen.
But small business exporters are not letting the high Australian dollar diminish their enthusiasm to seize exporting opportunities according to Lynda Slavinskis, a consultant to exporters and principal of Lynda Slavinskis Lawyers & Consultants.
The measures she is seeing exporters adopt to cope with the currency squeeze include:
- Where possible, denominating transactions with overseas clients in euros or even Australian dollars.
- Setting up US dollar accounts in Australia and then using that account for receivables and outgoings from overseas, thereby diminishing the sums that have to be converted to Australian dollars.
- Cutting back terms and shortening the gap between purchase of product inputs and sales, so the gap between currency when costs are incurred and revenue received is smaller.
Slavinskis says businesses in the crucial export markets of China and India are becoming more open to the idea of denominating transactions in Australian dollars as our profile in those countries grows.
“Things have opened up a lot, especially for those doing business in India. I think perhaps they are more open to understand Australia and have more links here and that has meant they have become a lot more keen to price things in Australian dollars,” Slavinskis says.
Currency hedging has also become important for some exporters, particularly those that derive most or all of their revenue from US dollar transactions.
Australian Institute of Export executive director Ian Murray says as the dollar has risen, hedging has become an increasingly mainstream part of the services offered by financial institutions.
“Professional exporters have used hedging and that has become more important at the moment,” Murray says. ”It is complicated, but there is a lot of choice and the products available are much more flexible than they were five or six years ago.”
Even so, Murray says, there is no question many exporters are being hurt by the high Australian dollar, particularly given the high fuel costs and lower Export Market Development Grant payments they also have to cope with.
But there is a flipside to the stronger currency – many importers are seeing the transaction costs fall each day as the dollar rises.
Currency trading firm OzForex deals primarily with importers. Manager of corporate business Jim Vrondas says many of his clients have stopped hedging and are now enjoying the ride.
“SME importers are having a good time of it,” Vrondas says. “They are not trying to lock in the dollar, as high as it is, because they are pretty optimistic it is going to keep going up and they will keep benefitting.”
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