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Home / Sponsored Stories

Kiwis losing millions every year

9 Nov, 2016 03:58 PM
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NZ dollar holds up after US election but Kiwis still losing millions a year because of other reasons.

The fallout from the US election is only just beginning as foreign exchange markets grapple with the reality of a Trump presidency.

NZForex's Head of Corporate FX, Alex Hill, says even micro movements in the currency exchange rate can have a big impact on the bottom line, where profits are often made or lost on less than a percentage point.

But events like the US election can send shockwaves through the forex market and cripple small businesses that aren't prepared.

"With so many factors influencing the value of the dollar, many people feel paralysed and completely at the mercy of foreign currency volatility," says Hill.

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Hill believes speculation from professional traders is another important factor to consider. During the election, as Trump took an early lead, the Mexican peso plummeted to record lows due to speculation.

What lies ahead for the New Zealand dollar is still unclear, but Hill says you can take additional steps to protect your bottom line.

There are ways to manage currency risk without expensive and complicated derivatives strategies. First, those transferring a large sum could consider splitting up their trades to even out daily ups and downs.

Others might prefer to take advantage of forward contracts which allow customers to lock in an exchange rate for up to 12 months. They can be particularly attractive for business people who can't afford to wait and see if the aftermath of the US election turns into another Brexit.

For New Zealand in particular, the kiwi last night had held up much better than other commodity currencies-the Australian dollar and Canadian dollar.

Hill says the US election and issues like dairy futures may have a bigger impact on exchange rates and the value of money - but today's Official Cash Rate announcement and movements are also important. That's because they make carry trades (trades that capitalise on the interest rate spread between two currencies) less enticing to professional dealers.

According to a 2016 Galaxy Research poll, 80 per cent of Australians would use a bank to transfer their money abroad. Assuming the same is true in New Zealand, using a bank to transfer money could be costing Kiwis millions of dollars a year, says Hill.

"Not many people realise there are online, non-bank alternatives that are a lot cheaper and offer better service. People tend to go to their bank as a default to execute money transfers, without really thinking about it. That's understandable but it's a costly mistake."

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Hill gives the example of a customer who needed to change NZD$1.2 million into Australian dollars to settle a property transaction. Using NZForex, she saved A$12,000 on the banks' billboard rates for that day. It was enough to buy a new car when she got there.

Many businesses need to exchange New Zealand dollars for US dollars or other currencies on a monthly or even daily basis. Many New Zealanders also receive pension payments from overseas, make regular mortgage payments on a foreign property or send money to overseas relatives.

"For them, fees can chew up a large percentage of annual remittances," he says, adding that timing and an awareness of events which can drive exchange rate changes are dominant factors.

The daily global forex market dwarfs the NYSE by trading in volumes around US$5.1 trillion a day, according to the Bank of International Settlements.

"Given these are large sums, in one transaction or over time, there's high value in having a discussion on how to manage your exposure," says Hill. "Forex is a complicated and costly business. Fortunately, help is available if you know where to go."

NZForex is part of the OFX Group, an ASX-listed company. According to the annual report, OFX last year turned over A$19.6 billion in forex transactions.

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