The Top 5 Corporate Foreign Exchange Companies
If you are an internationally-trading business, either by importing or exporting goods, or via paying for services abroad, you need a reliable foreign exchange partner. A currency service provider with a corporate FX department can help you:
- Pay wholesale prices on currency exchanges.
- Send money abroad with ease, with your personal, dedicated corporate FX dealer.
- Become more knowledgeable about currency trends, and be advised on when is the right time to sell or buy.
- Become able to hedge foreign currency risks through FX options (like forward contract).
View our list of recommended business FX companies that deal with Australian clients, or with overseas clients that require AUD transactions and hedging:
Which Business Should Use Foreign Exchange Services?
The most common misconception in the FX domain is that a business should be massive in size, in order to partake in the market. Most small businesses, in Australia, and globally, simply use their banks to make and receive international payments, without taking an active position in the market.
This kind of approach leads to a great deal of waste, and can seriously damage businesses which are reliant on foreign currencies.
Banks are non SME-friendly, because they are inflexible. Larger corporate clients will have access to the foreign exchange dealers, but smaller SME’s will not, and thus, as a small business owner – you would have to deal with your banker. A banker which is not permitted to give any special discounts on currency buy or sale. A banker which cannot offer any FX options like Forward Contracts. A banker which won’t follow the market in your behalf and make trades automatically at set rates.
On the other hand, corporate foreign exchange specialists like the ones listed above, will definitely:
- Provide discount rates on large volumes. The more trades, the bigger the amounts, the lower the margin that they would take.
- Look into your specific situation and guide you on the right timing to make payments, in accordance to the FX trending.
- Offer your business with a variety of hedging tools that will help you overcome the volatility which is such a major part of international trading.
An Outlook on the Australian Dollar
Yield trends and the search for yield will tend to remain the dominant short-term market influence given the very low level of interest rates. The Australian economy and currency will be an important element in this equation given that short-term Australian yields are still relatively high in terms of the major economies while the Australian dollar is very sensitive to trends in the global economy and commodity prices.
Federal Reserve policies and the Chinese outlook will have a key impact on the global economy and asset prices which, through the transmission of trends through risk appetite, will also have important implications for the Australian outlook.
The US economy and Federal Reserve policies will continue to have a crucial impact on the global outlook and currency markets.
The last two US employment data releases have been much stronger than expected with a cumulative gain in nonfarm payrolls of close to 550,000. There has also been a further gradual increase in average earnings with an annual gain of 2.6%.
The Fed is still uneasy surrounding global growth prospects and the strong dollar is also causing unease, especially given its role in holding down inflation. The risk of falling inflation expectations has been a key factor in deterring Fed tightening, but these concerns should ease and financial conditions are now looser with the US currency declining from peak levels. Overall, there is a strong case for the Fed to raise interest rates in the short term, especially as a further delay would risk having to tighten more aggressively later on.
In simplistic terms, a tighter Fed policy would tend to put downward pressure on the Australian currency through an adverse shift in yield differentials and reduced confidence in the global growth outlook and lower commodity prices. In contrast, an easier Fed policy would support the Australian dollar.
The ECB will maintain its very aggressive monetary policy in the short term with the main refi rate at zero, a deposit rate of -0.40% and monthly sovereign bond purchases of EUR80bn.
Very low interest rates will undermine the Euro directly and it will also continue to be used as a global funding currency to fund flows into higher-yield instruments. The currency will, therefore, tend to weaken if there is greater confidence in the global economy and robust risk conditions. In contrast, the currency will tend to gain ground if risk appetite deteriorates.
Overall, the ECB will find it difficult to push the Euro much weaker and, by the end of 2016, there will be increased speculation of a tapering in bond purchases which could trigger an aggressive covering of Euro short positions. Speculation over ECB tapering would tend to weaken the Australian dollar.
The economy remains trapped in a low-growth environment, with the government and Bank of Japan still battling to beat deflationary pressure.
The government has launched a fresh JPY28.1trn spending package to boost the economy with over JPY7trn in direct spending. To some extent, a looser fiscal policy will ease pressure on the Bank of Japan to relax monetary policy further, but the central bank has continually missed its 2% inflation target with the bank’s preferred rate still below 1.0%.
The Bank of Japan will undertake an extensive policy review for the September policy meeting. Overall, monetary policy is likely to be eased further which will put downward pressure on the yen.
Following the UK referendum exit vote, the Bank of England has cut interest rates to a record low of 0.25% to help cushion the economy from the shock. It is possible that business surveys and the bank are over-reacting to the Brexit vote and that conditions will stabilise very quickly.
The government is also likely to boost fiscal policy within the next two months. The UK overall fundamentals will remain very vulnerable in the short term which will tend to keep Sterling under downward pressure, although with a potential rebound from late 2016 if conditions stabilise.
After a major scare surrounding growth conditions early in 2016, there has been some overall stabilisation in confidence with aggressive credit expansion having a significant impact in supporting demand while the yuan has stabilised for now. Immediate fears of a hard-landing have faded, although the overall debt profile remains extremely worrying and relief could be short lived.
The most recent data was also disappointing with industrial production and credit growth much weaker than expected for July.
The most likely outcome is for a slight net improvement in conditions over the next few months before fresh turbulence in 2017 as underlying debt dynamics continue to deteriorate.
Global central banks will continue to pursue aggressive monetary policies over the next few months and money supply growth is expanding at a stronger rate. There is, however, also a growing acceptance that monetary policy is becoming increasingly ineffective in supporting demand and there is likely to be a greater emphasis on fiscal policy to support growth over the next few months.
Greater confidence surrounding global growth is likely to underpin commodity prices with WTI crude finding further support near the $40 p/b level for WTI with industrial commodities also firmer which will support the Australian currency in the short term. Overall demand for defensive assets is likely to be slightly weaker which will also tend to support the Australian dollar, although complacency is a key risk.
The Reserve Bank of Australia (RBA) is still trying to support domestic demand and rebalance the economy away from commodities and the impact of global cyclical trends. Commodity prices, however, will still have a very important impact and the economy will be correlated with the global outlook. Trends in China will also be very important for the Australian outlook with the economy and currency both vulnerable in the event of a Chinese hard landing.
Second-quarter GDP growth was stronger than expected with a 1.1% quarterly advance from 0.7% previously.
The central bank cut interest rates to a record low of 1.50% from 1.75% at the August meeting with the bank citing low inflation as the reason for cutting rates again. Although the latest inflation data was marginally above expectations, the headline annual rate of 1.0% remained well below the 1-3% target range and down from 1.3% previously, although the underlying rate was 1.7%.
The Reserve Bank will remain concerned over low inflation, but there will be very important domestic risks surrounding the any further relaxation of monetary policy, especially with the threat of financial instability through renewed upward pressure on house prices.
If global monetary policy remains extremely accommodative globally, the RBA will find it difficult to relax policy further and could be forced to accept a stronger exchange rate.
- The US presidential election is a potentially important risk factor. A victory for Republican candidate Trump would risk major turbulence surrounding global trade policies which would risk undermining sentiment surrounding the Australian economy.
- The Chinese debt position remains precarious while fresh credit injections are becoming increasingly ineffective. At best, rising defaults will increase banking-sector bad loans and government debt with the threat of a much more severe collapse in conditions which would undermine the global outlook and have a big knock-on impact on Australia.
- A sharper than expected increase in US inflation would risk a sharp sell-off in US bonds and force the Federal Reserve into a much more aggressive tightening cycle to head-off inflation which would risk recession conditions during 2017.
- There will be the risk of an Australian credit-rating downgrade, especially if there is budget deadlock, which would undermine confidence.
The Australian dollar will gain near-term support from benign risk conditions while the very expansionary global monetary policies will also support the currency with the Reserve Bank struggling to cut interest rates further given the domestic risks.
Overall risk conditions are liable to less benign during the fourth quarter, especially if Federal Reserve tightens monetary policy while China concerns are liable to increase again, although this may prove to be a bigger risk for 2017. There is also scope for confidence in global growth to hold relatively steady in late 2016 as fiscal policies are expanded.
|Currency pair||Spot rate||End-2016 forecast||Suggested strategy|
|AUD/USD||0.77||0.74||Sell near 0.7800|
|EUR/AUD||1.46||1.47||Buy below 1.45|
|AUD/JPY||77.5||82.1||Buy below 75.0|
|AUD/CAD||0.99||0.98||Sell above 1.00|
|AUD/NZD||1.06||1.02||Sell above 1.07|
|AUD/CHF||0.75||0.75||Sell above 0.76|
|GBP/AUD||1.68||1.65||Buy near 1.60|
|AUD/CNY||5.10||4.99||Buy below 5.00|
Any Limitations on Joining a Corporate FX Service?
All businesses, big, and small, can use commercial FX services. As long as the business is registered in Australia, New Zealand, United Kingdom, Eurozone, or UAE, you are good to go. For US-based businesses, you can choose World First, Moneycorp, OFX or Currencies Direct as they have licenses to operate in that region, while other companies might not have. There is not minimal trading volume which is expected of you, but if all of your trades are under AUD $5,000, you might be referred to use the online system and not be provided with a dedicated FX dealer.
Since these companies are 100% compliant with Anti Money Laundering laws, you should anticipate quite a lengthy process until you are approved as a trade-able client. In the same fashion you would have to provide a lot of documents if you decided to open a new business bank account. They will need unvarying proof of your business’ registration status, address, and bank account, to set up.
This is the only major hurdle with these companies, because once you have registered, you will be assigned with your own corporate FX dealer whom you’ll be in contact with for current and future trades. That person will know you, and your business, and will offer bespoke solutions to any query.