Insight to All Things Currency and Treasury Management

With what is arguably one of the most controversial U.S. elections in recent history coming up, uncertainty has been fairly widespread. The big question: What will it mean for your FX program?

Globally, however, this isn’t the first recent event to garner strong opinions, speculation and preparation for fallout. Three months ago, Brexit— the United Kingdom’s vote to leave the EU— unfolded. Originally thought to be a non-event by most, the world watched as the votes were tallied and in a major volatility spike across multiple currencies, the pound plummeted to a thirty-year low.

Here in the United States, we may have our own “Brexit” type of impact to contend with in the form of November’s election. And Interestingly enough, the margin of people convinced that convinced Trump will lose is surprisingly similar to the margin of those who thought Brexit would be a non-event.

The FX markets are relatively flat due to this uncertainty, but the chances of it remaining that way for long are extremely unlikely. In fact, we’re already beginning to see speculation of a Trump victory impact currencies (see Bloomberg’s article on the possibility of a Trump presidency affecting the Canadian dollar). No one really knows what will happen, but most agree that it’s only a matter of time before a major currency makes a big impact (namely post-election).

So, as a multinational corporate, what can you start thinking about to help you prepare for possible post-election chaos?

Increase or Tighten Your Hedging

In order to protect your company from a major spike in volatility, your hedge ratio should be as high as possible— transacted with smart timing, of course. This will help you to mitigate risk as much as you possibly can without knowing every potential ripple effect.

Widen Your Focus

While you may normally prioritize by your most volatile to your least volatile currency, in this case, it would behoove corporates to focus on their biggest exposures since there’s so much that’s up in the air. Once things become a little more clear, you can then begin focusing on your riskiest currencies.

Reporting On-Demand

One of the biggest differentiators between those who successfully navigate through any kind of major currency move or volatility spike is the ability to quickly access critical data and make it actionable. This includes the ability to take snapshots of your entire currency portfolio’s status, scenario analysis to understand the potential direct impact of fallout, and the ability to quickly answer CFO and board member questions.

Don’t mistake the silence as a sign that currency markets are tempering. Now is the time to have an honest and open discussion about your capabilities, putting you in a position to successfully get through anything the currency markets can throw at you. It’s only a matter of time before we see another major move— the question is, do you want to gamble whether or not that move will affect you by not being prepared?

Have questions about how to gauge if your FX program needs some help getting prepared? Contact FiREapps, we can help.