U.S. corporates look to hedge as dollar rebounds
The dollar's month-long rally against its major rivals, prompted by signs of widespread economic weakness outside the United States, carries a sting in the tail for U.S. companies with exposure to overseas markets.
Defence pays dividends for private investorsHaving been used to the long-term dollar downtrend of the past seven years, corporations were caught unaware by the greenback's out-sized move this month and most were not hedged against it, market participants said.
The dollar's decline had boosted revenue for U.S.-based multinationals, making their products less expensive in foreign markets, and increasing the value of overseas earnings when converted into the U.S. currency.
That changed in August as the dollar soared 5.4 percent against a basket of major currencies, the largest monthly gain in more than 11 years. For the year, the dollar has recovered 2.4 percent so far, after losses of 8.4 percent in 2007.
Investors have bought back the greenback, convinced that the dollar is a safer bet compared with other currencies whose countries have lagged the United States in terms of economic readjustment amid the global credit crunch of the past year.
"Most of these U.S. companies are not prepared for this dollar rally and are not hedged," said Wolfgang Koester, chief executive of FIREapps, a provider of software to manage currency exposure based in Scottsdale, Arizona.
"If they were hedged, they wouldn't have those gains. Bottomline, corporations should have no material currency volatility."
Overall, a weak dollar has helped technology giants with overseas presence such as Google Inc., eBay Inc., Hewlett Packard, and Amazon.com.
Google and Amazon earned half of their revenue for the past 12 months from overseas while eBay earned roughly 53 percent, analysts said.
Hewlett-Packard, the world's biggest computer maker, reported better-than-expected quarterly profit and revenue last month thanks to strong international sales in its notebook computer and printer businesses. The company's fiscal third-quarter revenue rose to $28 billion, with revenue from outside the United States accounting for 68 percent.
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