Australian SMEs are continuing to suffer under the high Australian dollar, with over half of SME exporters planning to increase their hedging as the local currency continues to rise, according to the latest Commonwealth Bank Aussie Dollar Barometer.
The new report also shows that 54% of exporters surveyed said the higher dollar may force them to cut jobs. The revelation comes after a shocking few weeks for the jobs market, with thousands cut from the mining and transport industries as businesses suffer under the higher dollar, fuel prices and low consumer spending.
Joseph Capurso, Commonwealth Bank currency strategist, says Australian exporters and importers are now having to plan and hedge more in order to remain competitive.
“The dollar is hurting businesses extremely hard. Exporters say they are uncompetitive when the dollar ranges from between 90 cents to a dollar, and as we all know it’s above that range. This is where we see exporters thinking about job cuts.”
The barometer, which was conducted by East & Partners, surveyed over 600 businesses.
Just under one-third of businesses with turnover of between $150-500 million are planning to cut jobs, with 19% of businesses with turnover between $5-25 million also planning to cut their workforce.
That pain is set to continue for some time, with Capurso saying the bank expects the dollar to remain between $US1.05-$US1.10 for the next 12 months. Commonwealth Bank also expects the dollar to reach a high of $US1.17c before the end of the year.
The Barometer shows that 53% of exporters are now planning to hedge their exposure, and two-thirds of importers are now saying they expect to hedge over the next three months – a “significant jump” from one year ago, Capurso says.
“There has been a huge lift by importers in the last year and a half to hedge their US dollar exposure. If we look at the start of 2010, it was well under 35% of importers that were planning to hedge, while the latest Barometer shows 68%.”
“It’s been quite a big change, and a steep increase in willingness to hedge while the Aussie dollar is strong.”
Exporters are saying they expect to trade currency about six times over the next quarter, and importers expect to trade about 18 times. Businesses that both import and export will trade currency about eight times.
Businesses with turnover between $150-500 million expect to hedge 80% of their US dollar exposure, and those with annual turnover between $5-25 million expect to hedge only 32%.
However, there are benefits. Capurso says the Barometer shows that most SMEs in the exporting and importing business expect to increase their exposure over the next quarter. About 89% of importers expect to increase exposure, with 30% of exporters saying the same.
Capurso also says job losses, if they occur, won’t necessarily pose a massive threat to the economy.
“The report is focusing on those who import and export, but most companies do not do that. And at the moment the Australian economy is producing about 16,000 jobs per month in the last year.”
The Barometer also points out that job losses will be offset by increases in importing.
“There are of course two sides to the story. While exporters are continuing to struggle, importers are clearly benefiting from the ongoing strength in the dollar. In fact, 17% of importers are looking to increase their workforce and it is also this group that remain most bullish on the dollar, expecting to rise to $US1.23 by the end of 2011.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
