How to counter the three major forces eroding your bottom line in 2026

In 2003, Volkswagen made a spreadsheet decision that cost the company more than a billion dollars. The treasury team looked at the cost of hedging 70% of the company's foreign currency exposure and decided to cut it to 30%. In that year, the euro surged nearly 20% against the US dollar over twelve months, and with the vast majority of its American revenue unprotected, VW watched profits collapse. €1.2 billion of losses were correlated to the hedging decision.

A single change in treasury management wiped out earnings.

History, as the saying goes, has a habit of repeating itself, especially when it comes to global volatility. In 2026, forces driving currency markets are more volatile, interconnected, and consequential for business and as a result companies should be using Volkswagen as a lesson to inform their own FX strategy.

The TL:DR. What is happening in macro markets and how is this impacting businesses?

The US Dollar reversal; the impact of tariffs and unpredictable policy

The US dollar has lost more than 8% against major currencies since early 2025. This is the sharpest reversal in almost 15 years of dollar strength and it’s largely self-inflicted.

The Trump administration's trade policy has raised the average effective US tariff rate to its highest level since the early 1970s. Technically, tariffs should strengthen the dollar: a country imposing tariffs buys less from overseas, demand for foreign currencies falls, and demand for its own currency rises. But that's not what has happened in the current scenario. When sweeping tariffs were rolled out, global investors saw an unpredictable America rather than a stronger one. Instead of buying more US assets, foreign capital started pulling out. Investors across Europe, Asia, and elsewhere began selling US holdings and rebalancing into other markets, pushing the dollar down.

That reversal flows directly into exchange rates. In Australia, the USD/AUD rate started 2025 around 1.61 and dropped toward 1.49 by December. For businesses, the consequences are immediate as the US dollar is the currency most of the world trades in. When it weakens, the value of every US-dollar-denominated invoice, contract, and receivable shifts. The unpredictability of what will happen with the trade policy also heightens the volatility.

The Oil shock

The US-Israel-Iran conflict has escalated to the point where traffic through the Strait of Hormuz, the narrow waterway through which roughly 20% of the world's seaborne oil passes every day, has been heavily disrupted. Brent crude surged above US$100 per barrel for the first time since 2022 and has been deemed the largest supply disruption in the history of global oil markets.

Currency effects have been sharp and somewhat asymmetric. Against a broader backdrop of US dollar weakness, there has been a small flight back into US Treasuries which is a pattern consistent with historical crisis behaviour. However the primary safe-haven bid has gone to gold, which has hit all-time highs and is now hovering around the US$5,000 mark. Meanwhile, the euro has come under significant pressure, reflecting Europe's acute dependence on energy imports. The net result is that major currency pairs are moving in increasingly unpredictable ways.

For businesses, this creates a compounding problem. Oil prices flow through most inputs: freight, manufacturing inputs, packaging, logistics, airfares, food production. Typically, sustained rise in oil prices decreases global production and currency swings make it difficult for companies to forecast margins and whether they will have a profitable quarter, without the implementation of proper FX strategy.

But geopolitical events make currency management considerably harder. A business that failed to lock in rates before the crisis may now be experiencing margin erosion driven purely by currency movements. One that neglected hedging altogether faces a double hit: higher input costs from rising oil prices compounded by an adverse currency shift. By contrast, businesses that secured forward contracts can ride out the volatility with at least one variable held stable amid so many moving pressures.

The Australian Dollar surge and the corresponding monetary policy

For Australian businesses, the picture is complex. For those with international operations, the strongest headwind may be coming from our own currency. The Australian dollar has appreciated roughly 10% from its 2025 average, rising from around US$0.64 to nearly US$0.71. This appreciation practically means that an exporter who budgeted at AUD/USD 0.64 and is now operating at 0.71 has seen their effective margin compressed by the currency alone. Equally, importers costing goods at these levels could face a sharp reversal if broad based risk-off sentiment takes hold.

Outside of tariffs and geopolitical tensions, another driver of this surge is policy divergence between central banks. The RBA hiked to 3.85% in February and again on March 17 by another 25 basis points to 4.10%. The decision by the RBA is in the aim to cool stubborn price pressures. In contrast, the US Federal Reserve sits frozen at 3.50–3.75%, with a tension present to contain tariff driven inflation and the desire to support the labour market. For the first time since 2017, Australian interest rates exceed US rates. That gap is attracting yield-seeking capital into AUD-denominated assets, pushing the currency higher.

This divergence is a complexity multiplier underneath the entire FX picture.

Three strategies to consider amongst the volatility

1. Stress-test your financial plan. Run your model at AUD/USD 0.68, 0.71, and 0.75. The businesses that will be best positioned are those that have already modelled the range of outcomes and understand the impacts.
2. Build natural hedges operationally where possible. Match revenues and costs in the same currency wherever possible, through local sourcing, hiring, and financing. Our client, Morse Micro, is a prime example of this, aligning both sides of their ledger in USD so currency swings don't become a margin problem.
3. Establish a formal hedging policy with appropriate tools. Our FX team at Primary can help navigate the appropriate tools you can use to implement real time FX strategy within your business.

The bottom line

Volkswagen learned its lesson and restored full hedging the following year. Most businesses don't get a €1.2 billion wake-up call. The forces driving FX volatility today: tariffs, energy shocks, central bank divergence, and geopolitical conflict are structural, meaning they are likely to last for the long term and businesses need to have strategy to match this.