OzForex launches currency volatility index

OzForex has urged Australian businesses to engage in hedging strategies to better protect and prepare themselves against further turmoil in 2009 following its launch of a new currency volatility range (CVR) index, which shows companies the true cost currency volatility can have on business profitability.

The index, to be published annually, pinpointed how turbulent the Australian dollar was last year, with its volatility range against the US dollar leaping to an unprecedented 44 per cent, a 144 per cent increase on the average volatility range over the past 10 years.

Monitoring exchange rates closely and frequently can make a real difference to a company’s bottom line said OzForex’s manager of corporate business, Jim Vrondas

“In these uncertain times, importers and exporters need to incorporate foreign exchange as part of their daily business routine.

“The OzForex CVR Index shows that the Australian dollar recorded an 18 per cent historical volatility range over the past 10 years, which in stark reality is an 18 per cent variation on company profits.”

Vrondas said there might be substantial savings to be had by timing the conversion rate better.

“We recommend businesses look at hedging strategies that can minimise the risk of exchange rate loss in these volatile times.”

He said if history repeats itself then businesses could be in for a lower volatility range in 2009 given last year’s 44 per cent swing against the US dollar.

“Following the sharp increase experienced in 2003 the next year saw a return to more stable trading conditions, with volatility back closer to the 10-year average. While it is unlikely we would see successive years with the volatility range above 30 per cent, it remains vital for businesses to have a firmer grip on their foreign exchange exposure to ensure a more profitable 2009.”