US, Canadian Companies Boost FX Hedges as Costs Rise

haowfkez]69xlsr95g3litcf_media_dl_1.png MillTech survey of 250 North Ame

Article content

(Bloomberg) — North American firms battered by this year’s currency swings are hedging more of their exposure to exchange rates, even as the cost of that protection surges.

Article content

More than 90% of senior finance leaders in the US and Canada surveyed by MillTech — a division of currency manager Millennium Global Investments Ltd. — said they were defending against foreign exchange risks, up from about 80% two years ago, when MillTech first began compiling the data. 

Article content

Article content

Article content

The quest for protection, driven by gyrations in the currency markets caused by US President Donald Trump’s trade war, comes as the vast majority of finance executives say they’re being charged more for those hedges compared to 2024. The dollar’s worst first-half performance since the early 1970s took many corporate treasurers and investors by surprise, as did a nearly 15% increase in the euro.

Article content

Article content

Ultimately, more than two-thirds of the 250 US and Canadian companies polled by MillTech said their profitability or competitiveness in international markets has been negatively impacted by trade-related currency volatility.

Article content

“North American businesses are facing an increasingly volatile landscape, with currency shocks and trade disruptions affecting their competitiveness and profitability,” MillTech Chief Executive Officer Eric Huttman said in a release Wednesday. 

Article content

After turning to options last year to navigate the volatility wrought by the US election, global companies continue to assess how to hedge best. For their part, US firms and their overseas suppliers increasingly opt to pay invoices in local currencies rather than the greenback.

Article content

Article content

Another lever that companies can pull is adjusting the duration of their protection. More than two-thirds of companies surveyed by MillTech said they plan to increase the length of their hedges, even as the average tenor remains around five months. 

Article content

That aligns with what Jackie Bowie, head of EMEA at risk management firm Chatham Financial, sees as a key focus for global corporations right now. “There’s a broader view that US dollar resilience and ‘US exceptionalism” are weaker than before,” Bowie said in an interview. “Our clients aren’t rushing to hedge for short-term weakness, but they are more concerned about the long-term picture.” 

Article content

The majority of companies surveyed by MillTech — nearly nine in ten — said they also changed their manufacturing strategies and how they source materials, with many stating they had “significantly altered” their supply chains.

Article content

For banks catering to corporate clients including Citigroup, Wells Fargo, BNY and JPMorgan, market volatility and the newfound focus on hedging currency exposure helped boost second-quarter earnings.

Article content

“In fixed income, the flows we saw in rates and currencies were particularly strong, backed by client momentum, including hedging activity as well as improved monetization,” Citi’s Chief Executive Jane Fraser said on a call Tuesday.

Article content

Between June 2 and June 10, MillTech surveyed 250 chief financial officers, treasurers and other senior financial executives at US and Canadian corporations with a market value of between $50 million and $1 billion.

Article content