Dollar damage?

RBA Governor Glenn Stevens has spent the morning softening us up for another interest rate rise – or more likely, a number of more interest rate rises.

It’s a good thing, Glenn says. A sign that the Australian economy is getting back to full speed and much faster than most of our trading partners (China excluded, of course).

Stevens’ softening-up strategy is fair enough – the RBA will need to get rates back to “normal settings” in due course and his job as RBA Governor is to make sure that businesses and consumers are well and truly prepared for that.

Of course, all this talk of rate rises will undoubtedly push Australia’s soaring dollar even higher.

Overnight, the currency pushed through the US91c barrier and most experts are tipping it will continue its march towards parity (that is US100c) in the coming months.

Now, the rising dollar is great news for anyone who imports products are raw materials, particularly the wholesale and retail sector who will be thrilled to have a little more added to their margins ahead of the Christmas period.

But for anyone who exports anything, the speed at which the dollar is moving is making life extremely difficult.

Those local industries reliant on overseas customers – tourism and education are the most prominent examples – will also struggle.

The higher the dollar goes, and the quicker it moves, the harder it will be for these companies to react.

Of course, it’s not just rates speculation pushing the Australian dollar higher. The weakness in the US dollar, rising commodity prices and China’s continuing growth are all factors.

But every time Stevens talks about rising rates, and every times rates actually move higher, the upwards pressure on the dollar will increase and our exporters will feel even more pain.