SME exporters hit as dollar soars to $US1.03

Australian exporters have been advised to look at ways to strengthen key customer relationships, adjust pricing and get advice from banks and foreign exchange services providers as they try to ride out the record Australian dollar, with experts saying many SMEs are not fully prepared to deal with the soaring currency.

Lynda Slavinskis, principal solicitor at Lynda Slavinskis Lawyers & Consultants, says while the soaring local currency is impacting on SMEs, it’s not having a “whopping effect” and the issue is still flying under the radar for many businesses.

“In business, mums and dads, particularly those that are growing, all they care about are keeping the business in the black,” Slavinskis said.

“It’s more about getting paid by overseas customers rather than worrying about currency fluctuations.”

The local currency reached a post-float high of 103 US cents overnight, meeting ANZ expectations that the Australian dollar would reach a 30-year high this year.

The rise in the Australian dollar is attributed to growing risk appetite around the world, Australia’s links to China and expectations the Reserve Bank will lift rates in the second half of the year.

While some SMEs are avoiding much of the pain by trading in American dollars, hedging remains an option for affected businesses, although many find dealing with banks difficult.
“From a notional perspective, they [SMEs] say hedging is a good idea, but then they find it hard work,” Slavinskis said.

“I advise small businesses to undertake other strategies such as working out what their payments are, and getting payments upfront,” Slavinskis said, naming 50% as an appropriate amount.

According to Slavinskis, the good news is that SMEs which survived the GFC and recent volatility in the Australian dollar are the ones with good relationships and systems in place.

But Peter Mace, general manager of the Australian Institute of Exports, presents a less sanguine take on the effect of the strong Australian dollar, noting concerns the United States and Europe will make significant inroads into Australia’s traditional markets in Asia, through weakness in the greenback and euro.

Mace says with many businesses reluctant to increase prices for fear of losing market share, cost-cutting and reducing imported components when possible will provide some relief.

Anecdotally, he notes that some SMEs have only been able to lock in forward hedging cover for three months, as opposed to previous six-month timeframes.

While reluctant to forecast where the local dollar is headed, Mace says it’s been a “really tough” time for exporters, particularly winegrowers. He says the nation’s booming mining exports and current interest rate settings suggest the Australian dollar might remain high for some time.

He advises companies to talk with their banks or providers of foreign exchange services and adjust their pricing strategies where necessary.