Exporters welcome currency drop as dollar stays below parity, banks slash currency forecasts

Exporters have enthusiastically welcomed the drop in the Australian dollar to below parity, with industry leaders saying the fall combined with the prospect of even lower interest rates has given the sector a much-needed psychological boost.

However, those in the sector also say business requires the dollar to stay below parity with the US dollar for a longer period of time before any sustainable benefits can be felt.

“So much of this business is psychological, and it gives people confidence,” Australian Institute of Export executive director Ian Murray told SmartCompany this morning.

“This drop is going to add a little something to exporters’ margins”.

The dollar dropped in value yesterday after new fears in the eurozone arose over the financial situation in Greece, including speculation the country might even abandon the euro altogether – although finance ministers have dismissed the idea.

The dollar dropped to $US0.99c yesterday, and is currently hovering at $US0.9974c.

While shoppers may lament the sudden change, which makes shopping overseas a little more expensive, Murray says exporters have welcomed the news. With the dollar staying above parity for so long, businesses have been locked into contracts that have lost them money – now they have a chance to expand their margins.

“Confidence is critical in this industry, it can make a huge difference in a business. This will mean a lot for many businesses, and with lower interest rates, that will help things as well.”

It’s the first drop below parity for several months – although economists are torn as to whether it’ll stay there. Murray says exporters don’t need that uncertainty.

NAB has cut its forecast for the dollar, saying it will drop as low as US98c, due to further interest cuts later in the year and a reduction in government spending. It previously said the dollar would hover at $US1.02c.

“It is the domestic factors which have changed and are likely to drive the Australian dollar lower quicker than we had previously anticipated,” NAB currency strategist Emma Lawson said.

Both Westpac and the Commonwealth Bank have joined in the 98c forecast, with the latter saying it will reach that point in June. The Commonwealth still predicts the dollar will reach $US1.05c in December, although that’s down from $US1.09c.

Murray says that uncertainty is still keeping some exporters on their toes.

“What exporters really want is continuity. If the dollar sat at between 90 and 95 cents they’d be comfortable, as long as it didn’t go back to $US1.05 and drop to 90 in just a couple of weeks.”

“It’d be nice if it was in the high 80s.”

Murray remains confident, as the major banks predict even more interest rate cuts this year, which should continue to bring the dollar down.

“There are industries where this won’t make much of a difference; like in education. I can’t see people overseas making a change in their decision to send someone to school here because of such a small change.”

“But if interest rates come down, and the dollar with it, that’ll bring some relief.”