Category C · Supply & Currency · Scenario 6
Currency Swing
A move in the New Zealand dollar changes what you pay for imports or what you receive for exports. A falling NZD makes imports more expensive; a rising NZD reduces the value of foreign earnings. Hedging can reduce uncertainty, but it is a risk-management tool — not a way to speculate.
Trigger
Exchange rates materially affect your costs or overseas income.
First move
Calculate your net foreign currency exposure and review your existing risk-management arrangements.
Immediate first response
Total up the foreign currency you need to pay or will receive over the next 6–12 months, and calculate the effect of a further adverse move.
First 24 hours
- List upcoming foreign currency payments and receipts by date
- Calculate the NZD cost at today's rate and at your budget rate
- Check any existing forward contracts or hedging
Next 7 days
- Talk to your bank about forward cover options and costs
- Agree a simple written policy for how much exposure you'll cover
- Review pricing on imported goods
- Consider invoicing or buying in NZD where possible
Next 30 days
- Implement the agreed hedging policy
- Build currency assumptions into budgets and quotes
- Review natural hedges — matching foreign income and costs
- Report currency exposure monthly
Typical causes
- Interest rate changes in New Zealand or overseas
- Global economic or commodity price shifts
- Political or market uncertainty
- Large unhedged foreign currency purchases or sales
Early warning signs
- NZD moving significantly against your main trading currency
- Import costs in NZD rising on the same foreign price
- Export margins shrinking in NZD terms
- Large foreign currency invoices due in the coming months
Trigger indicators
- Exchange rate moves more than 5% from the budget rate
- Unhedged exposure exceeds an agreed limit
- Margin on imported or exported lines falls below target
Financial implications
- Import costs rise in NZD when the NZD falls
- Export income falls in NZD when the NZD rises
- Hedging fixes a rate, which can help or hurt relative to the market
- Large exposures can materially change profit and cash
Questions management should ask
- How much foreign currency will we pay or receive in the next 12 months?
- What rate have we assumed in our budget and pricing?
- What would a further 10% move cost us?
- Do we have any natural hedges?
- Do we have a written policy on how much to hedge?
Common mistakes
- Trying to predict currency movements
- Hedging more than your actual exposure
- Ignoring currency in quotes with long lead times
- Making no decision and calling it a strategy