Irish companies doing business in Asia should trade directly in local currencies rather than incurring additional fees trading through the US dollar, is the advice from foreign exchange firm Clear Currency.
In its Asia Currency Outlook 2014, Clear Currency says the US dollar is expected to gain against emerging market currencies this year as the Federal Reserve tapers its quantitative easing programme.
Trading in Asian currencies avoids costs associated with an additional step of changing euros for US dollars and companies in Asia will often give discounts so trading partners can settle in the local currency, Peter O’Flanagan, head of trading at Clear Currency said in a research note.
“Traditionally Irish businesses trading in Asia would buy and sell goods in US dollars. However with the US dollar set to appreciate in 2014, even against the euro, this may become an expensive way of doing business,” said O’Flanagan.
Asia is an increasingly important trading partner for Irish companies with more than €2 billion worth of goods and services exported to India and China in 2012.
O’Flanagan cited an HSBC survey in China, which outlined that more than half (53 per cent) of Chinese businesses surveyed would offer a discount of up to 5 per cent for transaction settled in renminbi. “An Irish business changing €50,000 per month into Asian currencies could save itself as much as €30,000 per year by starting to trade directly in local currency,” said O’Flanagan. Clear Currency expects the euro to gain in value against the Japanese yen, Indian rupee and Thai baht this year, but to lose ground against China’s yuan.
