The winds of hurricanes Katrina and Rita may have blown out in the US but they are still leaving ripples across the world's currency markets and making themselves felt by UK finance directors and treasury teams.

However, Kenneth Broux, financial markets economist at Lloyds TSB , believes the impact will be short term. "It doesn't appear that they will have a lasting influence on where currencies will trade," he says.

Murray Gunn, investment director of currency at Standard Life Investments, says there has so far been little reaction in the currency markets to Katrina and Rita but he is still cautious.

Before Hurricane Katrina hit the US in September, oil prices were already at $65 a barrel, so for those looking at trading or hedging currencies with commodity-related currencies, the Canadian dollar, South African rand and Australian dollar continued to offer upside potential, Broux suggests.

He says such trades were exacerbated before the hurricanes hit on the back of speculation and uncertainty around the damage they would do to the US economy.

There was also speculation that the destruction they caused could sway the US Federal Reserve to keep interest rates on hold in the coming months, potentially resulting in a weakening of the dollar.

That speculation proved to be misplaced, with the Federal Reserve raising interest rates in September, stating that the disruption from Katrina would not pose a persistent threat to the economy.

The dollar rose as a consequence and has continued to appreciate on the outlook for further monetary tightening.

However, Standard Life Investments' Gunn is concerned about consumer spending. "The one thing that is in the back of our minds is whether Katrina and Rita will have a general pushing down effect on the US consumer and will affect them in a negative sense over the next few weeks and months," he says.

While this is not something he expects to happen, Gunn says there is a risk that because of the shocks, the US consumer could start to spend less, leading to an improved US trade deficit and current account position. High petrol prices over an extended period also effectively become a tax for the consumer, he says.

As a result, market sentiments on the dollar could improve, Gunn explains.

"That would be the main risk that we would see," he says. "At the moment, we are generally expecting a stable to slightly stronger dollar because of the interest rate differentials around the globe."

According to Lloyds TSB's Broux, the options for finance directors and treasury teams in the wake of Katrina and Rita depend on whether a short or long-term view is taken.

The long-term view is that the dollar is overvalued and the imbalances in the US trade and current accounts will weaken it, causing the dollar to fall against most currencies over a 12-month period, he says.

Those believing this to be the against the dollar's decline by selling the dollar, buying dollar put options or selling dollar forward contracts, Broux says.

"Each structural solution has its own merits but it also brings with it its own costs," he says. "It all depends on the maturity and contract size you are looking to hedge yourself for."

For those with a short-term horizon, there is an inclination to believe that the dollar will continue to rise, appreciating against sterling and the euro for two reasons, Brough says.

The first is the election uncertainty in Germany that is weighing on the euro; the second is the current interest rate differential, with rates at 3.75 per cent in the US, rising to 4 per cent in November, 4.5 per cent in the UK and 2 per cent in Europe.

Interest rate gap

Raising interest rates in the US and keeping them on hold in the UK and the eurozone will create an interest rate gap, attracting investment to the US.

"Similarly, the opposite side of the coin is you're going to get a reduction in yield advantage for UK assets over US short-term assets," Broux says.

Martin O'Donovan, technical officer at the Association of Corporate Treasurers, says the sort of hedging principles a treasurer would employ within their company should insulate them from one-off "quirks or sudden blips" like hurricanes Katrina and Rita.

"Therefore, he would probably have already hedged himself for his particular needs to a reasonable extent," he says.

While some treasurers may sit back and wait to see what the currency markets do, O'Donovan says others may see it as an opportunity to buy or sell a particular currency or slightly amend their hedging position.

"But normally, treasurers are not traders as such, so they're not really looking for volatility," he says. "In fact, they're trying to stay out of the volatile markets."

With the UK largely self-sufficient in oil, Broux adds, the main problem for UK companies is the prices of other commodities that surged during the year on strong demand in Asia. These prices may inflate further because of the supply shock and reconstruction programs in the southern US resulting from the hurricanes, he says.

But it is not just natural disasters like Katrina and Rita that can cause such impacts. Further terrorist attacks like that on the World Trade Centre could also be dollar negative and any disruptions to the peace process in the Middle East, a flare-up in terrorist activity there, or even in the West or Asia, could send ripples across the dollar-denominated asset markets.

"That would automatically trigger a safe-haven flow to Swiss Francs or gold markets," Broux says.

Market-driven events such as a sharp correction in the currently overvalued bond market could also have an effect on the dollar, as could a big sell-off of equities, with October historically the month for equity market crashes, he adds.

Chris Towner, currency strategist at UK currency broker HIFX, points out that this year has already seen several anomalies in the market, including the London bombings, which put sterling on the back foot, and the EU referendum, affecting the euro.

"These are the things that you have to try to cope with when you have an exposure," he says. "The only way you can cope with it is by managing the risk properly so that you are prepared for adverse moves by having a good percentage of cover already in place."