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Protect profits from Aussie dollar slide, says OzForex
14 April 2005Mid-year turnaround in US economy could see AUD back to low '70s or even high '60sOne of Australia's fastest growing providers of online foreign exchange services, OzForex, has issued a warning to its corporate customers: lock in current high AUD rates - or risk suffering dramatically weaker rates later in the year. Ozforex specialises in providing 'high tech, high touch' online foreign exchange services to small and medium-sized companies across Australia. According to Ozforex Manager Corporate Business, Andrew Porter, many companies are worried about where the Australian dollar will go from here, and how this will impact their business. "We are suggesting customers look at using forward hedging to lock in their currency exposures at these higher levels, to protect themselves against possible further drops in the Aussie dollar," Mr Porter said. "A much mooted turnaround in the US economy in the latter half of 2005, if it comes to fruition, will cause a strengthening of the US dollar and see the Aussie give back some of the gains it has made over the past few months. This could see the Aussie back in the low 70s or even the mid-high 60s," he warned. Over the last couple of weeks the Aussie dollar has already shed close to three US cents from its January high of 0.7991 and concerns over further rises in US interest rates are putting heavy selling pressure on the AUD. If Australian interest rates remain on hold, or do not rise beyond another expected increase of 0.25% in the near term, then further pressure could mount on the Aussie as its yield advantage diminishes. Mr Porter said currency volatility over the past 18 months looked set to continue, wreaking havoc with unprepared importers and exporters. In November 2004 the AUD reached a hight of 0.7950 then dropped back to a low of 0.7443 in December. Previously it had hit a high of 0.8003 in February 2004 only to bottom out at a low of 0.6772 in June. The local unit is currently trading around the 0.7600-0.7700 mark. Profit-taking by larger investors and market players could also have a detrimental effect on the Aussie dollar, he said. "With 80 US cents seen as a key 'psychological' level and with the pattern of historical trading in the Aussie showing that it hasn't stayed above 0.8000 for any large period of time in the last 12 plus years, investors are prone to take their profits and run," Mr Porter said. "Added to this are the larger exporters who see 80 US cents as a key stop loss level. If this level was breached it would eventuate in large stop loss sell orders going through the market, putting further downward pressure on the Aussie." Mr Porter said many importers and wholesalers operated on thin margins when selling their goods, leaving them highly vulnerable to rate movements. A forward contract is a binding obligation that allows companies to buy or sell a specified amount of foreign currency at an agreed exchange rate, for settlement at a specified future date - an 'agree now, pay later' arrangement. "A large fluctuation in the value of the Aussie dollar could damage their profits and negatively impact the overall business," Mr Porter said. "Forward exchange contracts are an effective and easy way to protect the profit margins of your business - and it's something any business owner can arrange over the phone or via the Internet." Ozforex was launched in April 1998 in a bid to provide smaller customers with better and cheaper foreign exchange services than the big banks. The Sydney-based company now operates in the Australian, UK and NZ markets and has become one of the world's leading online foreign exchange services, with over 300,000 visitors per month and more than 6,000 transacting customers globally. In 2004 Ozforex expanded its corporate dealing desk with the appointment of John Corcoran, formerly of Bankers Trust, as corporate dealer. In 2005 Ozforex appointed former Travelex corporate dealer Andrew Porter as Manager, Corporate Business, responsible for driving the growth and development of the corporate business. "We have seen a real growth in demand from the SME sector, which is in part driven by our major competitors overlooking the smaller clients in their pursuit of those with much larger turnover," Mr Porter said. "We've built a very robust IT platform which allows us to offer more personalised service to smaller customers who often need guidance and advice. Plus we guarantee to beat the mainstream providers rates - so once companies see how competitive our rates are and how low the fees are, they tend not to return to their old provider." What's in a rate? Big rate changes over 2004 caused unsuspecting companies thousands of dollars. For example, if you had a payment of USD100,000 you had to make to a supplier on 17 June 2004, and bought the USD at the lowest possible spot rate on that day, it would have cost you AUD147,667. However if you had entered into a forward contract earlier in the year - say on 18 February 2004 when the rates were at 0.8003 - then the cost of the transaction in June would have been AUD124,953 - a difference of AUD22,714. For further information go to www.ozforex.com.au or contact Philippa Honner, Honner Media, 0407 939 543 or philippa@honnermedia.com.au.  Back to Media Centre |
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IMPORTANT: This information has been prepared for distribution over the internet
and without taking into account the investment objectives, financial situation and particular
needs of any particular person. OzForex Pty Ltd makes no recommendations as to the merits of
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