As the 2024 US elections approach, North American corporate CFOs are confronted with the challenges of navigating a strengthening dollar and the uncertainties of an evolving political landscape.

According to MillTechFX’s second annual Corporate CFO FX Report, which surveyed 250 senior finance decision-makers, the findings highlight significant trends in foreign exchange risk management, automation adoption, and adjustments aimed at safeguarding profit margins.

US Elections

With the upcoming US elections set to introduce further uncertainties, corporations are adjusting their FX strategies. An overwhelming 86% of respondents plan to increase their hedging activities, particularly regarding the USD/CAD and USD/CNY currency pairs.

The findings revealed that CFOs are especially concerned about how potential policy shifts could impact currency values, with 44% citing this as a major issue. Unpredictable market movements and counterparty risks also rank high on their list of concerns.

The report noted that a strong dollar continues to exert pressure on corporate bottom lines, with nearly all respondents expecting the dollar to appreciate further. This trend raises alarms about profit margin erosion and competitive disadvantage, compelling CFOs to rethink their FX strategies.

Commenting on the report, Eric Huttman, the CEO of MillTechFX, said: "The upcoming US presidential election adds a layer of complexity to FX risk management . Potential shifts in policy, changes in economic direction, and new geopolitical strategies could all influence the US dollar’s value significantly."

"Following Trump’s surprise victory in 2016, the dollar jumped 5%, whereas it declined by a similar amount around Biden’s 2020 victory. Research suggests market participants weren’t hedging their FX risk as much ahead of the 2020 US presidential election."

Market volatility has increased since the beginning of 2024, prompting corporates to adjust their hedging approaches. The survey indicates that 82% of firms hedge their forecastable currency risk, a modest increase from 2023. However, many companies have reduced their average hedge ratios to 49%, down from 60%, and shortened hedge lengths to an average of just over five months.

Challenges in FX Operations

Securing credit lines has emerged as the foremost challenge among companies, with 31% of corporates citing it as their top concern. This shift reflects tighter risk appetites among providers and escalating costs, which have forced many firms to seek alternative quotes.

Additionally, the findings highlighted reliance on manual processes for executing transactions despite the availability of digital tools. Over a quarter of respondents continue to rely on traditional methods such as email and phone calls, which may expose them to inefficiencies and errors.

North American corporates have identified automation as their primary focus to address these challenges, with 36% prioritizing the need to streamline manual processes.