Despite a recent slump the dollar is still performing well this year. Sure it was stronger a month ago but the latest run of USD weakness is nothing to get too scared about in the longer term. In the past 12 months it is still 9.5% stronger against the Canadian dollar, 15% stronger against the yen and 18% better off against the euro.
Timber, much like gold, oil, copper or cement is a commodity and timber prices have fallen as the US dollar has strengthened and the global economy has wobbled. Timber futures on the Chicago Mercantile Exchange are down 29% on the year. For importers that is great, for producers that is worse news.
Recent noises from the Federal Reserve have shown a central bank eager to push back on rate expectations that had interest rates increasing this year. And push back they did. Estimates of inflation, growth and unemployment have all been revised sharply lower through 2015 with the key outlook for inflation only being seen to hit target in 2017 vs 2016 in the previous round of forecasts released in December.
Market expectations are that a rate rise could happen as early as September but those will only be secured if wages and inflation measures start to improve through the summer. If they don’t, then you have to think that the USD is going to be giving up more of its gains.
Anyone who buys or sells internationally, will be affected by the movements between pairs of currencies – in other words, it’s not just a ‘big business’ problem. Regardless of the size of your business, dealing internationally brings risks as well as rewards and can directly affect your bottom-line.
Hedging is the answer. It’s a way to protect your business from this market volatility and save your bottom line – and no matter how big or small, every business has a bottom line. This is done through a ‘forward contract’ which allows you to buy or sell a foreign currency at a predetermined price for a specified period of time. They are the only way to help you plan and forecast so that you don’t get caught out.
At the end of the day, the strength of the USD has been great for timber importers but the gains cannot be depended upon in perpetuity. Locking in and protecting your business is the safe, sensible way to make sure that cuts are made in the wood and not your profits.
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