Australian dollar hits 27-year high as pressure mounts on corporate earnings

The Australian dollar soared to a 27-year high of US99.35c overnight, with investors in companies with large offshore earnings bracing for potential earnings falls over the coming months.

The dollar is currently trading just above US99c after touching a high of US99.35c in overnight trade. That is the highest point the Australian dollar has reached against the Greenback since the Federal Government first floated the dollar in 1983.

While entrepreneurs are still trying to find ways to take advantage of the dollar’s strength – and insulate themselves from its effects, particularly if they export – investors are being warned that corporate earnings are likely to come under pressure due to the currency’s strength.

Top healthcare company CSL was one of the first to warn of the dollar’s impact. It says its after tax profit could fall by as much as $100 million if the dollar remains high for the rest of the financial year.

While CSL forecast earlier this year that it expected a net profit of $980 million to $1.03 billion this year based on last year’s exchange rates, its profit could slip to $880-$940 million is the dollar remains at current levels.

Chief executive Brian McNamee told CSL shareholder at yesteday’s annual general meeting that the impact of the dollar would be felt economy wide.

”One feels the Australian dollar is making life quite difficult for a number of sectors here in Australia, whether it be manufacturing industry, tourism, educational services.”

With Australia’s annual general meeting season not getting into full swing, investors can expect to hear similar warnings from companies with large exposure to overseas markets.

Analysts say these companies could include Fosters, Ansell, Boral and Macquarie Group.

Most commentators expect the dollar to reach parity in the coming weeks and move as high as $US1.05.