Translation Exposure in 2025: What Australian Businesses Need to Know

When the Australian dollar (AUD) swings, it doesn’t just affect holidaymakers — it can shake up the profit and loss statements of some of Australia’s biggest companies. Welcome to the world of translation exposure, a financial risk that’s once again in sharp focus for 2025 as global currency markets continue their rollercoaster ride.

What is Translation Exposure?

Translation exposure, sometimes called ‘accounting exposure’, occurs when a company with foreign subsidiaries needs to consolidate financial statements denominated in different currencies. Even if a business never physically converts money, currency fluctuations can make profits look bigger or smaller on paper. For ASX-listed companies with assets, liabilities, or revenues overseas, this is not just an academic concern — it’s a bottom-line issue.

• Example: If an Australian mining firm earns revenue in US dollars, but reports in AUD, a weaker AUD makes those USD earnings look more valuable when translated into AUD, and vice versa.
• Balance sheet impact: Changes in exchange rates can inflate or shrink the reported value of foreign assets and liabilities.

Why Translation Exposure Matters in 2025

This year, translation exposure is particularly important for Australian businesses due to:

• RBA Policy Shifts: The Reserve Bank of Australia’s evolving stance on interest rates in response to persistent inflation has kept the AUD on a volatile path.
• Global Instability: Ongoing geopolitical tensions and uneven post-pandemic recovery have led to sharp currency moves, especially between the AUD, USD, and EUR.
• ASX Trends: Over 60% of the ASX 200’s revenue now comes from offshore, increasing the translation risk faced by Australian investors and CFOs.

In 2025, several prominent Australian companies, including CSL and BHP, have flagged currency movements as a major factor in their latest earnings reports. For investors, this means that reported profits can be affected by exchange rates as much as by actual business performance.

Managing Translation Exposure: What Are Companies Doing?

Unlike transaction exposure (where real cash flows are at risk), translation exposure is about accounting — but that doesn’t mean it’s ignored. Here’s how savvy businesses are responding:

• Natural Hedging: Matching foreign currency assets with liabilities in the same currency. For example, a company with USD revenues may take out USD-denominated loans.
• Currency Hedging: Some firms use derivatives like forward contracts or options to lock in exchange rates for future reporting periods, though this can be costly and is not always practical for translation risk.
• Functional Currency Review: Periodic review of which currency is used as the ‘functional currency’ for foreign subsidiaries — a key area under updated AASB accounting standards for 2025.
• Transparent Reporting: More companies are now clearly disclosing the impact of currency movements in their financial statements, helping investors make sense of the numbers.

For example, in its 2025 half-year results, healthcare giant CSL noted that a 5% movement in the AUD/USD rate could swing its reported net profit by over $100 million. This level of transparency is now expected by both regulators and shareholders.

Looking Ahead: Is Translation Exposure Here to Stay?

As Australia’s economic ties with Asia and the US deepen, and as the AUD remains sensitive to global commodity prices, translation exposure will continue to be a fact of life for many local businesses. With new accounting standards and increased investor scrutiny in 2025, companies can no longer afford to treat currency swings as mere background noise.

• Expect further innovations in how firms communicate and manage currency risk.
• Investors should watch for companies that explain, not just excuse, the impact of translation exposure on their results.