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Risk Management - Case Study AUDUSD

Updated: Jan 24, 2022

Firstly let me start by saying, I CANNOT PREDICT THE FUTURE! I really can't and in my 7 years in this industry I can tell you it's IMPOSSIBLE!

However, what I have learned is that currencies work in trends, when the AUD reaches a certain price, "news breaks" that sends it southward again, I've seen it too many times, you don't know what is coming, but something is coming!

Many months ago I spoke with clients about forward contracts, many booked some, some didn't it's always your decision, and your take on the market is just as important mine and there is never any pressure from me, however think about this.....

I have one particular client that spoke to several times, I wanted them to look at the 'probabilities' that's all, they import on average $1.5m-$2m a year into Australia from China, so a heavy reliance on the AUD/USD.

In May when the AUD/USD hovered around 0.78c I spoke to them about about forward contracts, the reason being is that since April 2018, only one or two days had we seen rate above this area. My thoughts were, let's lock in some money for future purchase, you've paid a 30% deposit at 0.78c, then we should look to lock in the balance, then you know what your costs are and there will be no surprises. They declined, they've gone down this path before, fair enough, I'll leave it with you.......

Since then and until today, we are seeing rate closer to 0.71c. so your final payment on a container (70% of the payment usually) is now 8-9% higher than where it needed to be. Now please don't get me wrong, the rates could have gone to 0.85c and I'd be to blame, however you may have missed out on a better rate, but you wouldn't have had to actually pay more, when rates move up, it's always "what if" but when rates move down it actually costs you physical money.

So let's look at the maths, this is purely looking at the scenario which has unfolded for one client this year: on average they purchase $100,000 USD per month.

  • USD $100,000 @ 0.78 = $128,205 AUD (May 2021)

  • USD $100,000 @ 0.71c = $140,845 AUD (September 2021)

DIFFERENCE $12,640 * 12 = $151,680

Dollar Chart

As I said at the start, I cannot predict the future, however I am here to look after your best interests, risk management as a business is the number one thing you can do when dealing internationally. Feel free to contact me about your current exposure and see if there is anything we can do for you.

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