Exporters welcome free-falling Australian dollar

The Australian dollar dropped under US81c this morning as global financial markets took a beating due to widespread fears over debt in the Eurozone, particularly in the troubled Greek and Spanish economies.

Wall Street stocks fell by 3.9% overnight, with the Dow Jones Industrial Average now at 10,068.01 – dangerously close to slipping below the 10,000-point barrier.

Locally, the benchmark S&P/ASX200 index fell 2.8% on opening to 4195.5.

The dollar dropped as low as US80.7c in overnight trade but has since inched back up to 82c.

Ian Murray, executive director of the Australian Institute of Exporters, says the drop is welcomed for some exporters, but companies will be upset by the currency’s speed and volatility. The Australia dollar was trading at just under US81c at 10.30 AEST.

“No one likes volatility. That’s always been our view. For people involved in speculative exports, any reduction in the dollar is going to be good for them, but it isn’t going to be good for a lot of people because the dollar is moving so quickly.”

“People can make long-term decisions in a lot of cases about the dollar, any in some of those cases speculative exports are a good thing. But the most critical factor for us is, what’s the dollar going to be at by the year’s end?”

Murray says the best currency point for exporters would be somewhere in the mid-70c range. However, he doesn’t expect the lower exchange rates to last for too much longer.

“The impact on the industry really depends on whether this is going to be a one or two week thing. If it’s a short-term situation then there are some speculative opportunities people can capitalise on, but if it settles back lower it will change how the market operates.”

“Ideally we would like to see the dollar at around 75 cents, that would make exporters feel comfortable. But I don’t think people can see that happening, when interest rates are remaining so low in the United States.”

CommSec economist Craig James agrees the fall in the markets will be short-lived. In a note addressing the “Panic of 2010”, James said a number of factors have caused markets to crash, including the Greek debt crisis, the Icelandic volcanic ash cloud, the oil spill in the Gulf Coast and regulatory investigations into Goldman Sachs.

“The current panic began with fears on Greek debt – more precisely whether Greece would default on their repayments. Those fears spread, with worries that Portugal, Spain, Iceland and Ireland would go through previous problems. But the doomsayers then speculated that the Euro could be at risk, and then there were worries about the impact of defaults on the banking system.”

But a long-term drop, he said, won’t occur. Too many positives are occurring in the market, including a successful bailout deal for Greece, upgrade of IMF economic forecasts, solid US economic data and strong financial reports from the US.

Additionally, he said Australia’s relative economic strength will keep the local economy buffered against any new developments.

James also said investors would do well to remain alert and keep their eye on the long-term outlook, suggesting the US dollar will recoup its losses.

“The fall in the Aussie dollar may seem bad, but unless you are an importer or a traveller, the positive spin-off for exporters and tourism is very positive.”

“We won’t be changing our end year target for the sharemarket at this time. The target of 5,400 is clearly unrealistic as things currently stand but we are still confident of a firmer tone in the second half of 2010.”