Exporters hurting from high Australian dollar, but stability should help ease the pain

Australian exporters are hurting as the Australian dollar continues to climb above US93c, but experts say stability will help businesses as they are able to lock in contracts for longer periods of time and pursue importing opportunities.

CommSec economist Craig James says exporters will benefit from the strong economy by relying on a relatively stable market compared to nations overseas.

“I think in general terms, the dollar will remain stronger for longer, as it did in the late 1980s or early 1990s, and you can put at where it’s going to be. The dollar will stay stronger for a longer period of time,” he says.

“The main upward pressure is the strength of China and our ties there. Our economy is in good shape, and although economic data is on the patchy side we’ve great a good reading for the end of October.”

Australian Institute of Export general manager Peter Mace says businesses are certainly feeling the pinch, but stability helps ease the pain.

“There are definitely benefits to having certainty, with the main one being that you can keep pricing at a certain level. But we would obviously prefer it to be stable at a lower rate… however, I would agree that everything is looking positive and it’s hard to see it coming down in the short-term. Although you can never bet on these things.”

Yesterday the Australian dollar breached a five-month high above US93c following solid economic data from China. Mace says exporters are hurting with the dollar having been in the upper 80s and low 90s for several weeks.

“Certainly our constituents aren’t happy. I guess that’s one of the legacies of a good economy, and how strong things are domestically. It’s a good story for the economy, but exporters are facing challenges against companies that have a price advantage.”

To survive, Mace says exporters need to look at taking advantage of importing opportunities and attempt to find new markers overseas where products are in demand.

“A lot of our manufactured items have components from overseas, so there is an edge there to import and get lower costs for production,” he says.
“In terms of exporting to other markets, it depends on the business. But some would be able to adjust pricing slightly depending on supply, and they can look for new markets. Businesses should find the top few countries importing their type of product and then focus on those.”

But there may be some hope for exporters. Yesterday in an economic update Westpac said the upward pressure on the dollar may subside over the next few weeks.

“Over the month the AUD has traded in an 88c to 92c range. It is finishing the month near its highs. Last month we noted that August had seen one way traffic, rising from around 87.5c to 91.5c.”

“Despite that apparent upward momentum we were comfortable to hold our view that AUD would remain broadly in that 88c to 92c range trading range. We are still comfortable with that view and expect that the recent upward momentum of the AUD is likely to fade through the month.”

James agrees, saying although there is no reason to believe the dollar will come down from its highs any time soon, there will be some downward pressures.

“There are still concerns about the global economy, concerns about the US housing sector and the level of unemployment, the potential of a double dip and the ongoing concerns about European. “

“The house view is that the dollar may ease before the end of the year. Now, that’s not a good call to have given the dollar is moving higher rather than lower right now, but we don’t believe the global economy is out of the woods yet.”