3 steps to prepare for currency volatility
Looking to transfer money globally but don’t know when to do it?
Currency markets are hard to predict. While we can expect certain events to trigger market moves, such as worsening global trade relations, changes to central bank monetary policy or economic downturns, the market doesn’t necessarily always react as expected. Then, there are the events nobody even saw coming, such as COVID-19.
But sometimes, no matter what is happening in the world, or the currency markets, you need to move money globally.
With volatility never out of the question, it makes sense to consider your global money transfer needs and goals, and to be prepared. That way, when currency swings present opportunity, or you need to act quickly to defend against rates moving against you, you will feel confident and in control. Because when it comes to your money, informed decisions are the best decisions.
Here are 3 steps to help you feel more confident about your next move.
1. Understand your needs
Are you time or price sensitive? What is your attitude to risk? Being aware of your needs will help you determine if you are willing and/or able to play the currency market.
- Is there a set amount that needs to be received in the foreign currency? OFXpert tip: OFX lets you work out your costs from either the amount you want to send or the amount the recipient needs to receive, depending on your needs.
- Do you have a target date by which the money should be in the target account? Is it flexible?
- Is the entire amount required upfront or could it be split into a deposit and remaining payment, or multiple instalments?
- What is the worst rate you/your business is prepared to exchange at while still meeting your budget/profit goals?
- What is more important to you, completing a timely transfer or getting a great exchange rate? Are you willing to spend time and headspace waiting for a better rate? If you are waiting, are you comfortable with the risk that the rate might move against you?
2. Set a goal.
Having a clear understanding of your goals will allow you to identify when the timing is right for you, and feel confident you have made the right decision, with no second guessing.
- What is your target rate?
- Is your expectation realistic? OFXpert tip: Go to the OFX Currency Charts, select your currency pair and you can quickly see the range the pair has been trading at in the currency market over the last few days, weeks, months, or even years.
Watch out Did you know the rates you look up on Google or that are reported in finance news are a wholesale rate, likely available only to large financial institutions or those who purchase large volumes of currency? Generally, people wishing to exchange currency will not be offered the market rate (also known as the interbank rate), but instead will be provided with a ‘retail’ rate. Similar to the sale of goods and services, the retail rate is typically the market rate plus a markup added by the provider.
- By staying up to date on the market rate, you could determine if market movements could present any upside (getting more for your exchange) or downside (getting less for your exchange) for your currency pair. OFXpert tip: every month, OFXperts outline what’s driving the currency market and what to watch for the key currencies in the Currency Outlook
- What is the current rate available to you? Does it meet your needs? What’s holding you back from doing it now? Remember, although exchange rates moving in your favour could mean more money in your recipient account, waiting also means running the risk of losing money and being in a worse position.
3. Make a plan
Currency markets move fast. Being prepared will allow you to move swiftly and confidently when the time is right.
- Have you decided on a target but don’t want to watch the markets?
- Set up a Rate Alert. If your target rate is reached, we’ll notify you via email or SMS.
- If you’re happy to transfer at the target rate, set a Target Rate Transfer. If and when the rate is triggered, we’ll process the payment for you. OFXpert tip: Speak to an OFXpert to determine if your target rate is realistic for your required time frame.
- Do you have availability of funds for your transfer if your target rate comes up?
- Do you know your current transfer limits? If not, there may be some admin required to get these updated and authorised so you can move quickly when you are ready to take advantage of the right rate.
- Give yourself enough time - if your transfer is time sensitive you should be aware of weekends and public holidays which could cause it to take longer to get to the recipient account.
- For a large amount, consider a test transfer with a partial amount. That way, when you are happy to transfer the remainder at the current rate for your currency pair you will have a sense of how the process works and how quickly the transaction can be completed.
- Unsure about the current environment but ready to transfer? By splitting your transfer into multiple transactions, for example $100k over four $25k transactions, you can decrease your exposure to unfavourable rate changes. OFXpert tip: If you are a business paying overseas suppliers, or if you have ongoing set payments (e.g. an overseas mortgage), OFX have risk management solutions that can help protect you from adverse currency fluctuations.
Still feeling a little overwhelmed with currency swings? Whether you’re waiting for the right exchange rate, or just need a little support with the transfer process, our OFXpert team is here to help 24/7. Contact us today.