Australian SMEs are the world’s most advanced users of currency risk hedging tools, according to new research by Associated Foreign Exchange (AFEX).
The group’s second annual Currency Risk Outlook Survey sampled over 450 financial decision-makers in Australia, Canada, the United States and the United Kingdom based on their attitudes and behaviours surrounding global trade, foreign exchange risk and methods for managing it.
The survey revealed that Australian businesses are more cautious about making financial decisions than their international counterparts, with 45 per cent of businesses using hedging tools to create certainty around cash flow and margins in comparison to the global average of 32 per cent.
Prudent measures are likely to continue in the next 12 months, with 93 per cent of Australian businesses reporting they plan to use forex risk mitigation strategies either to the same level or more than in the previous year.
The survey found 15 per cent of Australian SMEs are postponing or cancelling growth plans due to the currency volatility, compared to the international average of 9.0 per cent, while a further 12 per cent of Australian SMEs are scaling back their businesses, in comparison to the international average of 6.0 per cent.
“This slowing of growth within the small business sector engaged in international trade is clearly related to currency risk, which our research has identified as the main challenge confronting SMEs,” AFEX Asia Pacific general manager Richard Poulton said.
Meanwhile, domestic interest rate reductions and US economic policy were identified as the macro events to have most affected SMEs currency risk management strategies over the last 12 months, according to the survey.
AFEX Australia head of dealing David Greene said Australia’s interest rate policies have changed the dynamic of currency risk.
“The Australian SMEs who didn’t take any action to manage their currency risk in this volatile market were no doubt those which failed to execute on growth plans or scaled back,” he said.
“As interest rate policies continue to diverge, this poses a bigger risk for the Aussie dollar, as does the ongoing fall in commodity prices. In this market, all currency-exposed businesses can benefit by putting a risk management strategy in place.”