Exporters are being urged to quickly find new regions to trade with Australian dollars and examine as many cost-cutting measures as possible, with the dollar hitting a 28-year high overnight and remaining above parity.
Experts also say the dollar is set to remain above $US1 for some time, with the American Federal Reserve announcing a $US600 billion bond issue that is sure to keep US interest rates low, increasing demand for Australian dollars.
This morning the dollar remained above parity, at $US1.004.
Australian Institute of Export chairman Ian Murray says companies are struggling under the high dollar, but he warns there aren’t very many options for SMEs under pressure.
“They need to try and do as much business as possible in Australian dollars. Obviously, that is very difficult in regions such as the Middle East and even in China. But there are some regions dealing with Australian dollars in Asia and they need to look there.”
“Exporters need to make some tough decisions as to whether they’re prepared to operate in this environment. But their margins are the problem, not areas of sale and rates of trade.”
Murray says exporters are facing a double blow – the dollar is increasing alongside interest rates. “Both these situations are affecting exporters and the only real thing they can do is cut costs at a substantial rate,” he warns.
Murray quotes from research undertaken by the Institute that shows 60% of exporters are being affected by the dollar, with sales continuing to fall. He warns the biggest fix companies can pursue now is ensuring costs are as low as possible.
“Staffing is the big one. And the second biggest section would be marketing expenditure. But exporters are in a bind there as well because once you start cutting back on that, you lose your market share and it’s extremely hard to get it back.”
“The education industry is hurting very badly at the moment, and it’s going to be hard to get it back again. Many businesses are considering leaving exporting altogether.”
And exporters’ fears are growing after the US Federal Reserve announced its intention to purchase a further $US600 billion worth of bonds from Treasury. The Fed’s Open Committee said in a statement the purchase will be used to “best foster maximum employment and price stability”.
But in a move that caused the Australian dollar to head above parity to a 28-year high, the Fed also said it will keep interest rates low “for an extended period”.
“Although the committee anticipates a gradual return to higher levels of resource utilisation in a context of price stability, progress toward its objectives has been disappointingly slow,” the Fed said.
Chairman Ben Bernanke is attempting to step up GDP growth after interest rates have remained near zero for several months. Analysts say this latest strategy could fuel inflation, but the Fed says the program will be adjusted as necessary.
The announcement comes after the US recorded annual GDP growth of just 2% in the third quarter. Although this is an improvement on the 1.7% result in the June quarter, the Fed believes the economy is still slow enough to warrant further stimulus.
And Commonwealth Bank currency analyst Joseph Capurso says the Fed’s actions will keep the Aussie dollar high for quite a while.
“Our forecast suggests that the Aussie can get to about $1.02, although it will bob up and down around parity give or take a few cents for the next three or four months, maybe a bit longer. We don’t expect it to stay above parity for the next couple of years.”
“Our timeline is more months than years. But the average of the Aussie since it was floated was US72c or so, so we are well above average. It will stay well above average for some time.”
Murray says this prolonged exposure to a high Australian dollar is keeping exporters nervous, and many are considering leaving the game altogether.
“I don’t expect the dollar to come down any time in the near future. Businesses are very concerned about the dollar and rates. Big companies are a bit different, they can hedge a lot, but smaller companies are hurting.”
“The length of time the dollar is going to be high is extremely distressing, and all signs point to the fact it won’t be coming down for a while. It’s going to hurt.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
