North American firms delay investment on policy uncertainty

MillTech has published research showing that 90% of North American corporates delayed investment decisions over the past year because of US policy uncertainty. The survey covered 250 senior finance decision-makers at mid-sized companies in the US and Canada.

The findings point to a broad link between political and monetary uncertainty and day-to-day treasury decisions. Almost two in five respondents said investment decisions were significantly delayed, while many also reported changes to hedging, sourcing and manufacturing in response to swings in the US dollar.

Interest rate policy from the Federal Reserve or the Bank of Canada was the biggest external influence on foreign exchange hedging strategy, cited by 38% of respondents. US tariffs and trade policy ranked 33%, while tensions in the Middle East ranked 28%.

The research suggests currency risk management remains widely used across the region, though less than a year earlier. Some 82% of corporates said they hedge forecastable currency risk, down from 91% the previous year but broadly in line with earlier levels.

Among companies that do not hedge, market conditions appear to be shifting opinion. The survey found that 72% of non-hedgers are now considering taking out hedges, the highest proportion in four years.

Cost remains a factor. Average hedging costs rose by 52%, below the 76% increase reported the previous year, and 8% of companies said their hedging costs had more than doubled.

Many respondents said they were adjusting the structure of their hedging programmes rather than stepping away from them. Nearly half (48%) said they planned to increase hedge lengths, while 47% intended to raise hedge ratios.

Operational shifts

The report indicates that exchange-rate volatility is affecting operating decisions beyond treasury teams. Some 81% of respondents said recent US dollar moves had led them to alter sourcing or manufacturing strategies in ways that affected foreign exchange transactions, including 32% who said they had significantly changed their supply chains.

Despite that disruption, 72% said dollar volatility had a positive effect on foreign exchange returns. A smaller group, 19%, reported a negative impact.

The results suggest large market moves are creating both risks and opportunities, depending on each company's exposure and trading patterns. That uneven picture may help explain why investment plans are being delayed even as many firms continue to transact and hedge actively.

Tools and barriers

On the operational side, online user interfaces were the most common method for instructing foreign exchange transactions, used by 55% of firms. Email followed at 50%, more than double the level reported a year earlier, while 33% said they used the phone.

Access to timely information ranked as the leading operational challenge. Lack of real-time data and transparency was cited by 28% of respondents, while 26% pointed to difficulties obtaining comparative quotes, and another 26% highlighted onboarding liquidity providers.

For companies that still do not hedge, the most common reason was that capital could be used more effectively elsewhere, cited by 35%. Burdensome hedging infrastructure followed at 30%, ahead of minimal exposure at 22% and cost at 13%.

Automation interest

The survey found widespread interest in automation and artificial intelligence in foreign exchange processes. Price discovery was the task most often being considered for automation, at 48%, followed by risk identification and trade execution, both at 43%.

At the same time, companies reported concerns about expanding the controlled use of artificial intelligence. Model risk and governance issues were cited by 19%, cyber and privacy concerns by 18%, and integration challenges by 14%.

"North American corporates are facing a market where policy uncertainty is delaying investment decisions and reshaping business strategy. FX risk has become a boardroom issue. Our research shows that there is no single FX playbook that works for every corporate. Some firms are benefiting from dollar volatility, others are being hit hard by it. The firms that come out ahead will be those that build the right setup for their own exposures, combining disciplined hedging, multi-bank access, real-time visibility, stronger governance and intelligent automation," said Eric Huttman, Chief Executive Officer at MillTech.