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FX volatility a key challenge, says Deloitte

FX volatility a key challenge, says Deloitte

Jessica Yun
— 1 minute read

Corporate treasurers across the globe are preoccupied with increasing volatile foreign exchange rates, according to a new report by Deloitte.

The latest Deloitte Global Corporate Treasury Survey report surveyed the treasurers of more than 200 global companies and found 52 per cent felt foreign exchange volatility was the key strategic challenge for organisations.

Speaking to InvestorDaily, report co-author and Deloitte treasury and capital markets partner Steven Cunico said the rest of the world would start to see foreign exchange volatility as a risk due to uncertainty triggered by political events, and subsequently move it higher on the agenda.

“We’re quite used to a large amount of volatility in the Australian dollar,” Mr Cunico said.

“But now that the rest of the world is starting to see similar amounts of volatility in some major global currencies, [such as] the US dollar, euro, sterling, yen, Swiss franc, mostly those sorts of currencies were fairly stable and predictable; but the last couple of years have seen those currencies move around quite a lot, particularly for example, sterling with Brexit.”

However, the report also found that three in four treasurers or their teams were not actively monitoring ‘at-risk’ measures such as value-at-risk, cash-flow-at-risk, or earnings-at-risk.

Treasurers would need to do more to facilitate understanding among management about the risks, Mr Cunico told InvestorDaily.

“The key reason why we're not seeing it being monitored is a lack of understanding and awareness,” he said.

“Whilst the treasurer might be able to understand the complexities of at-risk measures, I think treasurers are struggling to get senior management on boards to also understand what these measures are to interpret them.

“Treasurers are probably not doing a good enough job at explaining the value [he] can add to the organisation.”

Mr Cunico added, “This lack of capability identified in our survey can also be seen as a real opportunity for treasurers to further invest in more sophisticated technologies with the analytics to deliver real-time information and so support better judgements and decision making.”

He also flagged the adoption of technology was also a challenge for investors.

“I would say the technology market in treasury is quite fragmented,” Mr Cunico said.

“There aren’t really dominant players – there’s quite a wide range of technology solutions that treasurers could use.

“Also, with technology moving so fast, if you’re going to do a big technology transformation, it could take a number of years.

“There’s a risk that by the time you finish the project, it’s out of date. So that’s a huge challenge: ‘how do I make my technology solution or strategy agile?’”

According to the report, respondents were split in the middle about the impact of banking reforms, with just over half (52 per cent) saying banking regulation already had an impact on their treasury, but with the other 48 per cent saying ‘yet to determine this’ or ‘none’.

Australia was in a ‘transition phase’ with regard to regulation, Mr Cunico said, with some regulation not set to impact banks until later.

 

FX volatility a key challenge, says Deloitte
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