How businesses can benefit from the UK’s trade deals with Australia and New Zealand

Earlier this year, the UK struck new trade deals with Australia and New Zealand – the first major free-trade agreements of post-Brexit Britain.

How can the new deals benefit businesses on both sides of the globe? We look at the trade and investment opportunities available, as well as how to navigate foreign exchange with the Australian and New Zealand dollars.

What are the new trade deals?

The two deals are the first entirely new free-trade arrangements negotiated by the UK since it left the EU.

They’re part of a conscious shift towards boosting British trade with other Commonwealth nations and tapping into growing Asia-Pacific markets, as the UK awaits accession to the CPTPP trans-pacific trade partnership.

The measures in the new agreements are wide-ranging, aimed at boosting trade in goods and services, sustainability, innovation, investment, and the movement of people. The deals remove tariffs and cut regulatory red tape, open up access for services – including for government procurement – and incentivise sustainability and emerging technology.

The UK government estimates that by 2035 the Australia deal will boost the British economy by £2.3bn per year and the New Zealand deal by £0.8bn per year. Although this may be fairly small in terms of national GDP, the opportunities could be transformative for some businesses.

What opportunities are available?

Greater import/export freedom

In terms of trade, the new deals make it far easier and more cost effective for UK companies to tap into Australasian markets, and vice versa.

Removing tariffs and slashing regulatory red tape on a vast range of goods are set to boost import/export trade both ways. UK firms can access cheaper imports, such as wine and agricultural goods, while exporters can expand their businesses on the other side of the world.

UK manufacturers could also benefit from cheaper machinery parts and industrial products, while e-commerce firms will enjoy fewer barriers to digital trade.

In addition, more relaxed rules of origins will give UK exporters a competitive edge over other international firms.

Sustainable trade, technology and innovation

Both agreements support sustainability, with measures aimed at boosting green trade and innovation.

This unlocks opportunities for companies that are either based around low-carbon technology or are looking to reduce their carbon footprint, potentially enhancing an already-growing and exciting industry.

Green goods now enjoy tariff reductions – particularly to and from New Zealand. Meanwhile, the UK-Australia arrangement commits to boosting innovation. Both countries have agreed to share research and industry practices, foster collaboration, and promote investment in low-carbon and emerging technologies.

Services, investment and movement of people

The trade deals also greatly improve access to services, particularly legal, financial, insurance and telecommunications. This is particularly beneficial for the UK, as the services sector accounts for around 80% of British economic output.

UK firms are gaining greater access to the Australian and New Zealand markets – particularly in Australia. The government procurement elements in the Australia-UK agreement open up new avenues for companies in both countries to win government contracts.

The measures also broaden and deepen market access for investors, while boosting protection measures to incentivise more investment.

Furthermore, greater movement of people could see professionals bring talent and fresh ideas into a new workforce, potentially plugging skills gaps and creating opportunities for cross-pollination.

How does currency exchange come into it?

For UK firms conducting business in Australia and New Zealand, and vice versa, it’s vital to have a foreign exchange strategy.

Currency markets are notoriously volatile, so when companies need to convert currencies – perhaps to pay for goods or repatriate revenue – shifts in the exchange rate can have a huge impact on budget.

This is especially true of the Australian and New Zealand dollars. Both the ‘Aussie’ and the ‘kiwi’ are considered risk-sensitive currencies, meaning their value fluctuates depending on whether global investors are anxious or optimistic. Amid a ‘risk-off’ mood, both currencies tend to fall; when the mood improves, they often rise.

As the market mood is constantly shifting, AUD and NZD tend to be more volatile than other currencies, such as the pound and the euro.

Both the Australian and New Zealand dollars are also impacted by domestic economic news and interest rates, along with commodity prices and news from China – due to the countries’ close trading relationships – adding to the volatility.

How you can protect against currency volatility

Shifting exchange rates can eat into your profits and cause headaches when budgeting, but there are ways you can mitigate the risks.

For instance, with a forward contract you can lock in an exchange rate for up to a year. While you won’t benefit if the rate improves, you will be protected from any unfavourable movement. And you’ll be able to budget with certainty.

As well as posing risks, currency volatility can provide opportunities. If you’re able to plan your transfers to capitalise on strong exchange rates, you could boost your revenue.

At Currencies Direct, we offer a range of transfer tools paired with one-to-one expert support to help you make the most of your foreign exchange transactions.

Get in touch with us to find out more or to open a business account. Registering is free, takes mere minutes, and there’s no obligation for you to transfer once you’ve signed up.