Currency volatility can quickly expose assumptions built into margins, costs and cash flow forecasts.
Interest rate decisions, economic data, politics and unexpected world events can all influence foreign exchange markets. Some currency movements are anticipated, but the size and direction of the market reaction can still come as a surprise.
Businesses that handle changing conditions well don’t necessarily have a better view of what’s coming. More often, they’ve identified their exposure and decided in advance how they’ll respond. They know where they’re exposed, which risks they’re comfortable carrying and where they want more certainty.
That’s where a Foreign Exchange (FX) risk management strategy can be useful.
Look at where foreign exchange can impact the business.
Foreign exchange risk isn’t always obvious as a standalone cost.
Say an Australian business agrees to pay a US supplier US$500,000 in three months. At an AUD/USD exchange rate of 0.72, that would cost around A$694,000. If the Australian dollar weakened to 0.69 by the time the invoice was paid, the same US$500,000 payment would cost around A$725,000 — roughly A$30,000 more.
On the other hand, if the Australian dollar strengthened, the AUD cost of the payment would fall. Currency movements can work for or against the business. Without a plan for managing that exposure, the final cost can remain uncertain until the payment is made.
OFX research found that 55% of UK SMEs report payment delays or re-negotiations as having a direct effect of currency volatility.1
Look at the currencies you’re regularly buying and receiving and think about the following questions:
- How far in advance are those amounts known?
- How sensitive are your margins to exchange rate movements?
- Are conversions happening because someone has made a deliberate decision, or simply because an invoice is due?
The answers could tell you much more about your currency risk than another hour spent watching an FX chart.
Talk to an OFX specialist today.
FX can feel complicated. Let our team help you understand the tools available to manage currency shifts.
Put some decisions in place before you need them.
This doesn’t have to mean building a complicated treasury function. A growing business might decide, for example, that known foreign currency costs above a certain amount need to be reviewed several months ahead. Another might choose to hold some revenue in the currencies it regularly spends, rather than automatically converting everything back to its home currency.
For some exposures, a business may decide that the current exchange rate works for its budget and use a Forward Contract* to fix a rate for a future payment. In other cases, it might be comfortable waiting but have a preferred rate in mind, making a Limit Order^ useful.
There will also be times when doing nothing is a perfectly reasonable decision. The important part is knowing that you’ve chosen the exposure rather than inherited it by default.
Growth tends to make the gaps more visible.
International growth often happens incrementally:
- You add a supplier in another country.
- A customer asks to pay in their local currency.
- Someone is hired overseas.
- The business starts selling into a new market.
As those changes add up, Finance can find itself managing more currencies, payments and FX exposure than its original processes were built for.
FX risk management isn’t separate from growth planning, so if a business expects its international activity to increase, the way it manages money across borders needs to be able to grow with it.
That could mean:
- Reviewing foreign currency exposure more regularly.
- Establishing an approach to currency hedging before a large overseas contract is signed rather than afterwards.
- Making use of currency accounts to hold, pay and get paid in multiple currencies without unnecessary conversion costs. Research found that 37% of UK SMEs use multi-currency payment platforms as their top tactic to reduce international payment costs.2
BlendAI reduced bank fees by ~$5K annually with OFX.
“With OFX, I’ve now got a local US account that’ll receive and hold US funds, because I know those funds will go out again in the US. So why lose money converting it back to AUD?”
— Dean Krowitz, CEO and Co-founder, Blend AI
Scenario planning can make the conversation more useful.
A forecast can become more useful when the business has also considered what happens if exchange rates move differently than expected.
For example, take a business importing goods from Europe. Its budget may assume an EUR/AUD exchange rate based on current conditions. Finance could also model what happens if the Australian dollar strengthens or weakens by 3%, 5% or 10%.
This can show how different exchange-rate movements could affect the cost of those goods and the margin the business earns on them. A stronger Australian dollar could reduce the AUD cost, while a weaker Australian dollar could increase it.
From there, Finance can consider how much movement the business is comfortable with, what the budget can absorb and whether it makes sense to hedge some of its euro exposure.
This turns FX volatility from an abstract risk into a range of financial scenarios the business can plan for.
Structure can support growth, not slow it down.
Managing FX risk isn’t only about protecting the downside. It can also give a business more confidence when assessing growth opportunities.
Imagine the business is considering a new overseas supplier that could significantly reduce production costs, but doing so would create a large recurring foreign currency exposure. With that exposure understood and an FX strategy in place, Finance can assess the opportunity more than the possibility that the currency might move.
While growth will always involve uncertainty, a solid financial structure can help the business understand which uncertainties matter and what it can reasonably do about them.
Stop waiting for certainty.
There will always be another central bank decision, economic release, election or geopolitical event capable of moving currency markets. Waiting until the outlook becomes clear can easily turn into waiting forever.
A more useful question for Finance leaders might be whether the business could respond if conditions changed tomorrow. Consider:
- Where is your foreign exchange exposure?
- How much does it matter to your margins?
- Which upcoming payments are already known?
- Where would greater certainty be valuable, and where are you comfortable remaining exposed?
You don’t need to know exactly what the market will do next to answer those questions. You just need to start structuring for it.
Explore how OFX can help you manage foreign exchange risk as your business grows.
References
1, 2 – https://www.ofx.com/wp-content/uploads/2026/01/213_UK_SMB_Report-Final.pdf
Disclaimers
*Forward Contracts are not available for clients in Singapore.
^If you book a Limit Order, it may mean losing out if the market rate continues to move above your target rate. There is no guarantee that your desired rate will be reached. Once the order is triggered, the transfer is binding and cannot be voided.
