It may seem obvious to say that every federal election influences the Australian economy; however, the numbers paint a clear picture of the impact that a Labor win has, compared to that of the Liberal-National coalition win, when it comes to exchange rates.
For example, in reviewing the AUD-USD exchange rate for the six weeks following federal elections since 1990, the data shows the average change following ALP election wins is a decrease of 0.30 per cent, compared to an increase of 3.44 per cent following Liberal-National election wins.
It’s always possible that the recent Labor election win will buck the trend, resulting in an uptick in the AUD-USD exchange rate. However, this remains to be seen, and it will take time before the new Cabinet’s policies start to come into effect and have any influence. This is especially true given the Labor government is inheriting the Australian economy at a particularly volatile time with inflation tipped to be heading towards seven per cent.
As such, businesses will be watching the impact of Labor’s government on the FX market closely. And, coming into the new financial year, business leaders will be paying attention to how changing policies and market pressures impact their cashflow and budget planning for the year ahead. To mitigate the potential challenges of the Australian dollar falling against the US dollar and the impacts this has on the bottom line, executives need to carefully consider their business planning, especially when it affects the cost of goods and services.
There are three ways that organisations can better plan for this:
- Keep a finger on the market pulse
Staying informed is the best way to plan, even in so-called unprecedented times. The future is almost always unprecedented, so business leaders should be aware of the challenges that come with uncertainty. Staying informed is realistically the only way to really succeed in a volatile market. This means that businesses should take potential future changes to the exchange rate into account when planning and include regular assessments of their business plan in their roadmap to adjust according.
2. Adapt to changing markets
Exchange rates can be a blessing and a curse, depending on if the Australian dollar falls or rises. Planning only for the Australian dollar to drop means that businesses aren’t prepared to capitalise on when the dollar is strong. As such, organisations need to plan for both possibilities, and ensure they have the capacity to flex either way. This means having the right tools and infrastructure in place to make the most of a strong Australian dollar, to help offset the challenges when the dollar depreciates.
For example, if a business operates in markets when the dollar increases in value, it could essentially mean that goods and services are effectively on sale without the business even needing to drop prices. Harnessing this opportunity means that marketing efforts should be increased; the underlying business plan needs to account for these business possibilities and be agile enough to adapt.
3. Invest in supporting technologies
Modern technologies can help companies realise greater efficiencies across cost, processes, and other operational activities. Regardless of the industry, it’s likely there’s technology available to provide better support across multiple levels of the business. Technology can also be especially helpful to mitigate the risks and keep businesses on track in a volatile economic environment.
Investing in solutions can help to better manage cross-border payments, protect against currency fluctuations, and more. Business leaders should consider researching and investing in financial solutions and service providers to help take some of the guesswork out of the equation. This can ensure the business is best prepared for either outcome when it comes to the exchange rate fluctuations.
It will take some time for the new government’s policies to be implemented and their full impact felt. However, regardless of the future impacts, now is an ideal opportunity for business leaders to review their past 12 months of performance and plan for the year ahead. This is especially true for companies that rely on the import and export of goods where currency fluctuations often impact bottom-line revenue.
David Britten is managing director for APAC at Corpay.