Dollar spike leads economists to review impact on small business

The spike in the Australian dollar to its highest point in three months, as well as its biggest single-day rise in two years, has economists speculating on the impact for small business and exports.

The dollar went up 1.5 US cents to hit over 95 US cents, which stemmed from the US Federal Reserve’s decision to continue to pump money into the global financial markets.

Reserve Bank of Australia board member John Edwards was reportedly frustrated at the decision, according to The Australian Financial Review.

CMC Markets chief market analyst Ric Spooner told SmartCompany this morning that this situation demonstrated that the dollar is not providing its “stabilising role”.

“The higher dollar makes exports less competitive, and generally for business it holds back growth and will bring less confidence,” he says.

“It could get worse. The currency markets have been acting on a presumption that the US would start unwinding its stimulus.”

Spooner says the spike does increase the probability of a rate cut in November.

Export Council of Australia general manager Peter Mace told SmartCompany this morning that he didn’t think the dollar jump would have a long-term impact on export businesses unless it remained high.

He says most export orders are placed three to six months in advance, with people locking in orders when the dollar was lower, so it was unlikely the jump would have an immediate impact.

Mace didn’t think an increase or drop of one or two cents in the short term would impact whether deals were signed or not.

“Most reviews are that it will settle back down again … around the 90 cent mark,” he says.

Mace says recent discussions with export businesses have revealed a more buoyant outlook for their prospects post-election.