If your business deals with foreign currencies, understanding forward points could save you thousands in 2025. These small numbers have a big impact on how much you actually pay or receive when locking in future exchange rates. With global markets more volatile than ever, mastering forward points is crucial for Australian importers, exporters, and anyone hedging FX risk.
What Are Forward Points—and Why Do They Matter in 2025?
Forward points are the adjustment added to (or subtracted from) the current spot exchange rate to calculate the rate on a forward contract. They reflect the interest rate differential between two currencies over the contract period. In practice, forward points are what make a forward FX rate different from today’s spot rate.
- Positive forward points: The forward rate is higher than the spot rate (the base currency is at a premium).
- Negative forward points: The forward rate is lower than the spot rate (the base currency is at a discount).
In 2025, with the RBA maintaining a cash rate of 4.10% and the US Federal Reserve expected to lower rates after a turbulent 2024, forward points for AUD/USD contracts are shifting, creating new risks and opportunities for Australian businesses.
How Forward Points Affect Your FX Contracts
Let’s say an Australian importer needs to pay a US supplier in three months. If the spot AUD/USD rate is 0.6700 and the three-month forward points are -20, the forward rate becomes 0.6680. This means the importer will get slightly fewer US dollars per Aussie dollar in three months, due to Australia’s higher interest rates compared to the US.
Why does this happen? The calculation reflects the cost of holding each currency over the contract’s term, based on their respective interest rates. In 2025, with Australia’s rates still outpacing many global peers, AUD is often at a forward discount against USD and EUR.
Example:
- A Brisbane exporter sells machinery to a client in Germany, invoiced in euros. To hedge, she locks in a six-month forward AUD/EUR rate.
- Spot rate: 0.6100. Six-month forward points: -35.
- Her locked-in forward rate: 0.6065. This secures her profit margin but reflects the cost of hedging due to higher Australian rates.
Key Factors Shaping Forward Points in 2025
Several forces are shaping forward points for Australians this year:
- Interest Rate Differentials: The RBA’s 2025 policy has kept rates above those of the US and Europe, meaning AUD is often at a forward discount. If US or European central banks cut rates further, this gap could widen.
- Global Uncertainty: Ongoing geopolitical tensions and fluctuating commodity prices have increased FX volatility, making forward contracts (and their pricing) more attractive for risk-averse businesses.
- Bank and Broker Margins: While forward points are based on interbank rates, your provider may add a margin, so it pays to compare quotes and ask for transparency in pricing.
For example, in early 2025, Australian exporters to Japan have seen JPY forward points swing sharply as the Bank of Japan ends negative interest rates, narrowing the gap with Australia and reducing the AUD/JPY forward discount.
Best Practices for Managing Forward Points
- Know Your Exposure: Map out future foreign currency payments and receipts to identify where forward contracts make sense.
- Monitor Central Bank Moves: Keep an eye on RBA, Fed, ECB, and BOJ policy announcements, as they can quickly shift forward points and hedging costs.
- Negotiate With Providers: Ask banks and brokers for a breakdown of their forward point calculations and compare rates regularly.
- Don’t Over-Hedge: Lock in only what you’re confident you’ll need; being over-hedged can backfire if your business volumes change.
Conclusion: Make Forward Points Work for Your Business
Forward points are more than just a technical detail—they’re a critical cost or opportunity for any business managing FX risk. In 2025, with Australian rates still relatively high, understanding how these points impact your forward contracts can protect your margins and support smarter financial decisions. Stay informed, negotiate hard, and ensure your FX strategy is up to date for the current environment.
