FX Watchwords for Forward-Thinking Treasurers
In such a volatile environment, choosing the optimum hedging strategy is no mean feat. What’s more, certain derivative products, such as forwards, are becoming more costly. One way to ensure the company’s hedging approach keeps pace with rapid market shifts is to build in optionality – but this requires knowledge and skill. How, then, can treasurers find the right hedging balance? And how can they build automation into their FX workflows, including transactional FX, to further reduce costs and increase efficiency?
As 2023 continues to unfold, treasurers must expect another volatile year for FX and commodities – and adjust their hedging strategies accordingly. It is not all doom and gloom, however. Among the ‘surprises’ there will be silver linings and also opportunities to be seized.
Paco De Haro, Head of Southern Europe FX Sales, Barclays International Corporate Banking, explains: “Covid restrictions in China last year accounted for slightly over half of the dollar’s outperformance. As China reopens, and travel to the country gathers pace again, we expect to see a pick-up in demand for commodity currencies as well as emerging market FX, with appreciation expected in those currencies. Arguably, there is a sweet spot there for some calculated risk-taking, although treasurers are not typically ones to speculate.”
De Haro cites the Chilean peso as an example. “With Chile’s copper exports to China ramping up on the back of the Chinese government’s investment into infrastructure as the economy reopens, the peso has already appreciated. We expect to see this in other commodity currencies as well.”