Exporters tip Australian dollar will hit $US1.16

SMEs believe the Australian dollar will continue to reach new heights, with exporters particularly bullish on the local currency despite the fact the current level of the dollar is well beyond their “pain threshold”.

According to the Commonwealth Bank Aussie Dollar Barometer, which surveyed 600 businesses with between $5 and $500 million in revenue, exporters tip the local currency will soar to $US1.16.

Importers expect a high of $US1.14 by the end of the year, while businesses that import and export see a $US1.15 peak.

Commonwealth Bank currency strategist Joseph Capurso says exporters nominated 91 cents as the level they thought they became uncompetitive. The Aussie dollar last traded at 91 cents in September 2010, and is a good 16 cents below the current level.

But he says that pain threshold may well lift, as businesses increase productivity to deal with the dollar trading above parity.

“As businesses react to the currency and the interest rate, the pain threshold will probably adjust,” Capurso says.

“It will increase as the dollar increases because businesses will find ways to adjust.”

Capurso says CBA sees more upside for the Aussie dollar, tipping it will reach around $US1.12 by September, and then start to ease as the US Federal Reserve tightens monetary policy around the end of this year or in early 2012.

With the Australian dollar the second-most traded currency in the top 10, behind the New Zealand dollar, Capurso says businesses are increasingly looking to hedge to smooth out volatility.

The survey found almost two-thirds of importers plan to hedge their Australian/US dollar exposure over the next three months, versus 39% one year ago, although fewer than one in two exporters (48%) intend to do so.

“It appears that a growing number of importers are hedging their exposure in an attempt to lock in the benefits of the strong currency before their predicted fall in the Australian dollar,” the bank says.

Businesses that import and export remain the most willing to hedge, the bank says, with 66% planning to do so.

The survey also found that almost 80% of exporters are considering changing their selling prices, most likely a pay cut, while about half of importers are considering passing on the benefits to customers.