How to protect your growth from global currency swings

Practical strategies to protect your growth from global currency swings.

It is difficult to predict where the Australian dollar will sit against its US counterpart in a few months. The AUD/USD exchange rate has decreased from 0.69 in October 2024 to below 0.60 in April 2025. Still, businesses can protect themselves from adverse movements in the currency that could hit profits or costs.

Some businesses will be able to absorb an adverse currency movement through methods like increasing selling prices. Others are highly sensitive to currency movements, which can reduce — or even eradicate — their profit or increase their costs.

“You cannot do anything about the fact the market may move up or down by 10 cents, but having a conscious approach to your risk management can buy the management team time. It can allow you to smooth out volatility and adjust to new prevailing market conditions,” says Simon Hunter, Managing Director, Business Bank Sales, Global Markets, CommBank.

“What every client wants to avoid is a situation at the end of the year where they have been profitable or not because of a currency fluctuation, either in their supply chain or their client base they’re selling to.”

Unique currency fluctuation challenges

Each industry will have its own specific foreign exchange (FX) risks. A fashion importer, for instance, will be making demand forecasts and placing orders at the start of summer for the following year’s winter season. They’ll agree on a price with their Chinese or Indian supplier, probably in US dollars, at the same time, with the payment to come a few months later, such as when the goods are shipped.

The importer might agree to pay the US-dollar equivalent of A$50 for an item and its shipping and then plan to sell it for A$70 for an A$20 profit. But if by the time it pays for the item, the Australian dollar has fallen by 10% against its US counterpart, it will cost the importer A$55, leaving it with a profit of $15, some 25% less than forecast.

“You’ve actually had a 25% hit on that profitability despite nailing your assumptions around consumer demand, despite nailing your market expertise around what’s fashionable and what should be there, despite managing your logistics and your operation to have things in the right place at the right time,” says Hunter. “Because you didn’t manage that currency risk, 25% of your profit margin has disappeared.”

Businesses in the agricultural sector, by contrast, will be exporting food. A beef producer might have been contracted to sell a herd of cattle to a Chinese buyer for US$5 million in six months. But because their feed, salaries, other expenses and profit are all in Australian dollars, they are taking a risk if the Aussie dollar strengthens — because the US$5 million they receive in payment will be worth fewer Australian dollars.

Thoughtful considerations

CommBank Global Markets helps clients identify where they have currency exposure in their supply chain and cost structures, and then aids them in quantifying it. This could mean, for instance, considering how a 10 cent fall in the Australian dollar against the US dollar in six months might affect their costs or sales revenue and what ability they have to absorb additional currency costs.

Knowing how the client’s industry peers manage FX risk is also important. Doing something counter to standard industry practice might open up a competitive advantage, but it may also open up risk. A retailer of imported goods, for example, could be at a competitive disadvantage if they had to push up prices because of a lower Australian dollar while competitors could maintain prices because they’d hedged their FX exposure.

Strategies for FX risk

The final step in the process is considering the appropriate risk-management solutions.

One solution is a foreign exchange forward contract - an agreement to buy one currency against the delivery of another currency at a rate set on the trade date for settlement on a specified future date. These are easily accessible online within CommBiz or via a dedicated market specialist.

CommBank Global Markets specialists can also assist in the consideration of a broad range of FX options — which can potentially give the buyer the right, but not the obligation, to buy or sell a currency at a predetermined exchange rate. However, some clients will decide they don’t want to take out any FX hedges. Hunter says this can be a legitimate strategy, but it should be a conscious decision after identifying the risk and how well-placed the business is to manage it. Some businesses will also have a “natural hedge”. For example, if they are paid in US dollars but a significant proportion of their costs is also denominated in US dollars, then a rise in the Australian dollar won’t hit their profits so hard.

Kathryn Ball, Executive Director, Global Markets, CommBank, says the point of managing foreign exchange risk for clients is not to hedge for what they know, but for what they don’t know.

“Managing foreign exchange risk gives you time to make the structural and strategic shifts in your business that you might need to make when you see one of these risk events play out and a large shift in the currency,” she says.

“Again, when clients are thinking about managing risk, they should be thinking through what your strategic solution is. Is it your offshoring production? Is it your renegotiating process with suppliers or customers? Often, these things take a lot of time. Your approach to managing FX risk should be buying you the time to do these other more strategic things that take longer to insulate your business.”

Ball says businesses should consider managing their own FX risk rather than, for instance, insisting they are billed only in Australian dollars. This would mean their supplier is taking on the FX risk, which will likely be reflected in the pricing.

A considered FX risk management strategy can help mitigate controllable financial risks associated with running a successful import or export business. For expert guidance, consult an FX specialist to support your management team in strategic planning, allowing greater focus on core commercial activities.

CommBank can offer insights such as economic research and information on how the currency market has moved previously to help give clients more context for their FX decisions. Learn more at the CommBank Economic Research and Insights hub.

This article first appeared under the headline 'Managing FX Volatility' in the June 2025 issue of Company Director magazine.