International Payments | Articles

Currency rates just became wildly important

As we are seeing with the COVID-19 crisis, very little in our economy is purely local.

Banks can help their commercial customers reduce their vulnerability to volatile currency swings

Currency markets are one example. The markets are reflections of what is happening globally. They serve as the ultimate sentiment indicator, telling us what the future may bring for a country, region, or the world at large.

But shifts in sentiment can have a big impact – changes in currency rates can alter business costs in the blink of an eye.

Still, many businesses importing and/or exporting have little understanding of the impact of currency volatility on their cashflow management and profits.

The speculative nature of currency valuations makes them volatile. They are highly susceptible to world affairs; bad news can easily send them into an overnight tailspin. The global coronavirus crisis is the most recent example of this, sending currencies around the world reeling.

AUD’s natural volatility

The Australian dollar is one of the most volatile currencies in the FX market. Since the AUD was floated back in 1983, its average annual range has been 19% (source: Refinitiv, May 2021).

The AUD can be particularly volatile due to its exposure to global sentiment that can be driven by commodity prices and expectations for Chinese growth.

This volatility means that your business cannot be complacent. Outside the pandemic, previously stable countries have become unsettled by climate change. It’s no longer the case that any particular currency is the safest bet.  More and more, the name of the game is currency diversification.

  Help protect your business from currency fluctuations.

The first step is to figure out how you may be at risk. Think about these questions:

  • What percentage of your business costs are in foreign currencies?
  • If rates changed and suddenly those costs were 15% higher, could you absorb it? What about 20%?
  • What is your back-up plan if you can no longer afford these international suppliers?

While it is true that uncertainty is always part of business, creating a FX risk management strategy that takes into account your projected foreign currency can mitigate the impact of unpredictable moves in FX markets.

Western Union Business Solutions helps enable business of all sizes to send and receive cross-border payments and manage foreign exchange.

Whether you require an online payment solution or personalised support to help guide you through the world of foreign exchange, Western Union Business Solutions’ industry expertise and distinguished service portfolio will help enable you to make international payments and manage currency risk with confidence.

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