How businesses can prepare for the federal election’s market impacts
Election results can have significant impacts on the Australian economy. The potential impact can be seen by analysing historical data on past Labor and Liberal-National coalition wins.
There's evidence in the case of exchange rates. For example, since 1990, a review of the AUD-USD exchange rate for the six weeks following federal elections shows the average change is a decrease of 0.3% following ALP election wins, compared to a 3.44% increase following Liberal-National coalition election wins.
More than a month into the new Labor government's tenure, it remains unclear if the party's recent election win will repeat historical data and break the trend with an uptick in the AUD-USD exchange rate. As the new cabinet enters its second month, it will be interesting to see the exchange rate numbers, especially as the Labor government has inherited the Australian economy at a particularly volatile time.
While the Labor government's policies are yet to filter in and potentially make a significant impact, business leaders are no doubt watching the markets closely to see how policy changes and market pressures will affect cash flow and budgets. This could be further complicated by the Australian dollar falling against the US dollar. Moving into the new financial year, it's prudent that business executives carefully consider the potential impacts a falling dollar will have on both the cost of goods and services and the bottom line in their business planning.
Improvise, adapt, overcome
While it's not necessarily possible to predict the unpredictable, business leaders can take steps to essentially manage for volatility. There are two primary ways they can achieve this:
1. Watch the market: Business leaders should more than ever be well-versed in the challenges that come with inherent market uncertainty and understand that staying informed can help understand and be aware of the markets. In addition, business planning should account for future changes to the exchange rate, whether positive or negative, and the need to regularly assess business plans and roadmaps so they can be adjusted accordingly.
2. Prioritise adaptability: The economy can be unpredictable, so it's essential that businesses don't only plan for one possibility. Planning solely for a dropping dollar could leave businesses unable to capitalise on a more positive outcome, for example. Instead, organisations need to have plans that account for different possibilities and empower the company to be agile enough to adapt.
While these steps are important, organisations should also have the tools and infrastructure to flex. Deploying modern technologies that help organisations streamline processes and operational activities is one way businesses may realise greater efficiencies and keep the associated costs low.
Customisable currency products and tools are available to help businesses manage cross-border payments and help protect against currency fluctuations, which can be critical in keeping businesses on track in a volatile economic environment. It may be crucial that organisations are prepared for multiple possibilities regarding the exchange rate, especially following material events, including elections.
Though we expect the new government's policies are largely yet to be implemented, and thus their full impact is yet to be seen, businesses can be prepared for possible currency market fluctuations, good or bad. The new financial year is an especially pertinent time for business leaders to assess their performance in the last financial year and plan accordingly.