Exporters worried as dollar hits US85c

The Australian dollar has continued its rally today, hitting a 10-month high of US85c, but exporters warn their industry will be under pressure if the dollar continues to rise in value.

Ian Murray, executive director of the Australian Institute of Export, says exporters have enjoyed a solid few months of good activity but the recent rise in the Australian dollar is presenting the industry with significant challenges.

“It hurts. In the last five or 10 days, this has been a very rapid rise. It’s of course terrific if you’re importing, and going on a holiday, but not so good if you’re an exporter and dependent on prices.”

“Exporting has been very strong, and if you talk to a lot of the major service providers they’ll also tell you that exports have been strong in areas such as agribusiness, food and education, things like that. We’ve talked to people have said they’ve had the best two or three months of their businesses.”

Murray says exporters will continue to be under large amounts of pressure if the dollar continues to rise, and that the optimum level for the dollar should be in the low-70c mark.

“If it continues to rise, and sits at a higher level, there will be continued pressure on exporters. One would like to see it in the low 70s, around there. But the real problem is the speed at which the dollar is rising, coupled with the fact you have a difficult economic environment anyway.”

“A lot of people are hedging, and are doing all sorts of things they can to make sure they protect their foreign exchange movements. But in the final event if the dollar stays up, obviously it’s going to have a long-term detrimental effect.”

But there may be some hope for exporters, as Westpac senior economist Matthew Hassen believes the current rally cannot sustain itself.

“I think the last couple of years have highlighted how difficult it is when you have a major global financial crisis to predict currency fluctuations, and it makes it a very hard task and understandably hard for those who are in a position to fix prices, such as exporters”.

“But we don’t expect the current rally to continue. At the moment the rally is tied in with the improving sentiment around the world that has seen investors increase their exposure to high risk assets, which has increased commodity prices. Whether you see that as self-reinforced, it’s hard to tell right now. But we don’t expect it to continue.”