Dollar dramas

One of the negative side effects of having an economy that is the envy of the world is rising interest rates. While the RBA decided to leave official rates on hold last week, bond markets are betting rates will soon be on the way up, and that has had the effect of pushing the Australian dollar sharply higher.

This morning the dollar hit a four-month high, passing through the US93c barrier.

For exporters, that’s a bit more bad news they really did not need. Overseas markets remain sluggish at best, and a high Australian dollar does nothing to make our exporters more competitive.

This morning Craig James from CommSec highlighted the particular struggles of the tourism sector, which he bluntly describes as being “in trouble”.

“Today the Aussie dollar rose to the highest levels in almost 21 years against the Euro while also lifting above US93 cents,” James says.

“In simple terms, the high Aussie dollar is causing more Australians to take their holidays overseas while also reducing the attractiveness of Australia as a destination for foreign tourists. In June more Australians went overseas for holidays than ever before, although the number eased modestly in July. And while tourist arrivals are up 9% on the depressed levels of a year ago, they are still 4.5% lower than two years ago.

“In the year to July, one million more Aussies went abroad for holidays than foreign tourists came to our shores. At the height of Australia’s tourist boom nine years ago, it was the other way around – almost 1.5 million more foreigners came to our shores for holidays than Australians travelled abroad.”

James notes that “regional Australia is vulnerable to the rising currency, especially northern Queensland, northern NSW and Tasmania” – ironically all areas where independent MPs now have a lot of say in national policy. He suggests state and federal governments may need to look at special assistance programs for tourism operators, although there may be some hesitancy on this from stretched treasurers and finance ministers.

While this is ugly reading for anyone in the tourism sector (directly or indirectly), it’s also worrying for the wider economy.

While our mining sector is surging and keeping exports at high levels, other key export sectors are under pressure, including education, manufacturing, wine, surfwear and tourism.

We need to do more – much more – to encourage our exporters to ensure we have an economy that can prosper when the mining boom inevitably comes off.