Market uncertainty as Aussie dollar falls to 10-month low

The Australian dollar has dropped to its lowest level in 10 months, dipping to a low of US95.63 cents this morning, with the fall triggering a mixed response from struggling sectors.

The local currency has tumbled more than 12% since peaking at $US1.10 less than two months ago amid fears of a deepening debt crisis in Europe.

Westpac currency strategist Jonathan Cavenagh says it is unlikely that there will be a short-term fix to the economic turmoil, which could see the Australian dollar fall by a further US4-5c.

“It’s difficult to see what could get us out of this risk-averse market in the next few months … the risk is towards the US92c to US93c region over the next month or two,” he says.

Predictions that the Australian dollar will continue to fall will come as a relief to Australian tourism operators – the strong performance of the dollar has encouraged more Australians to travel overseas and has cut the number of international visitors.

According to Tourism and Transport Forum chief executive John Lee operators are still concerned about the shortage of skilled labour.

“Especially in regional areas tourism operators are having trouble finding and retaining skilled staff as they cannot compete with the wages being offered by the mining sector,” Lee says.

In contrast, retailers believe the decline in the dollar will not stop the shift to offshore retailing due to considerable price differences between products bought locally and those sourced overseas.

Brad Kitschke, a spokesperson for the Fair Imports Alliance, says while retailers may be hoping the local currency continues to fall it won’t be good news for importers.

“When wholesalers have to purchase products they need to speculate a fair bit … so there is a fair range of speculation that goes into the price,” he says.

“When you purchase something directly from overseas you’re purchasing at the exchange rate so there is always going to be a struggle to compete.”

According to Commonwealth Bank currency strategist Joseph Capurso a declining local dollar could cause shoppers to head back to local stores.

“One thing that you can be sure of is that there is going to be a lot of volatility, a lot of ups and downs in this market,” he says.

“Companies that are involved in international trade have to be careful to manage their exposures to foreign currencies rather than just flying by the seat of their pants.”

Manufacturing activity contracted further in September due to the high Australian dollar, indicating that there could be some relief as the dollar starts to fall.

The Australian Performance of Manufacturing Index, compiled by the Australian Industry Group and PricewaterhouseCoopers, fell one point in September to 42.3 points.

AIG chief executive Heather Ridout says manufacturers remain cautious due to the volatility in the market.

“Most respondents (are) uncertain about the outlook and citing little visibility in relation to business conditions beyond the short-term,” she says.