Exchange rate management 23-09-2011

It is tempting to try and guess where the market will be going - even when planning an overseas holiday.

However it is really hard to predict the foreign exchange market even for those who work in it all the time.  Part of the reason it is so hard to predict is because the NZ$ is strongly affected by what happens in the rest of the world. So at the moment the NZ$ is subject to, amongst other things, the crisis in Europe (or as Berlosconi would say what crisis) the crisis in the USA (more particularly the lack of leadership) the currency control in China and Japan and high interest rates in Australia.

With such big pressures on the NZ$ predicting where it will go with regard to any other currency is akin to guessing where a ping pong ball will go in an ocean storm.

Accordingly, it is essential that a business understands what it needs to achieve with its offshore pricing and structures its business and foreign exchange policy in a way that allows that. The foreign exchange policy should ensure that:

• all transactions support the targeted business outcome;
  
• advantage can be taken of the inevitable peaks and troughs that will continue to occur;
  
• decisions are made against objective measures not by reaction to today's news;
  

Sounds easy.