The AUD/USD has fallen from 0.9400 (September 5th 14’) to 0.8033 (January 8th 15’) which equates to a whopping 14.5% in only 125 days. The general reasons for this shift are numerous, including the overall weakening of our local economic performance, the rise of the US economy, fading global commodity prices and the gradual economic slow-down from our largest trading partner, China.
The RBA have enjoyed this decline, calling for a return to a level in the AUD/USD which will promote ‘economic optimisation’ (the level where the RBA expects that the dollar value importers and exporters are trading at is the most balanced) – let’s say approximately 0.75c.
So, what do the banks think? The table below represents the 2015 forecasts from the major banks around the world, including the Big 4 Australian Banks.
| Financial Institution | Q1 15′ | Q2 | Q3 | Q4 |
| ANZ | 0.85 | 0.84 | 0.81 | 0.82 |
| Barclays | 0.84 | 0.83 | 0.83 | 0.83 |
| Bank of NZ | 0.82 | 0.82 | 0.82 | 0.8 |
| CBA | 0.78 | 0.73 | 0.76 | 0.77 |
| CITI | 0.77 | 0.73 | 0.7 | 0.7 |
| HSBC | 0.82 | 0.8 | 0.79 | 0.78 |
| Investec | 0.85 | 0.83 | 0.85 | 0.85 |
| JPMorgan Chase | 0.84 | 0.83 | 0.84 | 0.86 |
| Morgan Stanley | 0.82 | 0.8 | 0.78 | 0.76 |
| NAB | 0.81 | 0.8 | 0.79 | 0.78 |
| UBS | 0.83 | 0.85 | 0.85 | 0.8 |
| Westpac | 0.82 | 0.8 | 0.83 | 0.85 |
It is clear that the experts have a very mixed opinion on the AUD and most of the above have revised their forecasts at least once during the latter half of 2014, highlighting the difficulty of attempting to predict future AUD movements. Factors that will provide further direction as to this movement include, potential interest rate cuts/rises, commodity price fluctuations and ‘carry-trade’ potential.
Businesses must look to protect their currency exposure against such a volatile market and ‘hedging’ is the most effective tool available as it guarantees certainty. Those who have hedged their exposure (for free/zero premium) before this fall are still enjoying levels clear above 0.85 and even 0.90c.
In other words, it is completely irrelevant in the short-term if the AUD falls another 5 cents, providing you have protected your budget/costings line, which should be the focus for any business with exporting or importing at the heart of their operations.
So the pertinent question is: given the wide array of expert opinions in terms of AUD/USD movements throughout 2015, how are you going to protect your bottom line and ensure you are in a position to take advantage of higher movements?
Ellis Taylor is the Deputy Head of Sales, Corporate Foreign Exchange for World First Pty Ltd.
You can contact Ellis directly on (02) 8298 4903 or Ellis.Taylor@worldfirst.com