The Australian dollar yesterday hit a six-month low against a stronger US dollar and the falling price of iron ore, but experts say it will need to drop further for it to have a significant effect on small businesses.
The dollar dropped to US91.36 cents on Wednesday, its lowest local level since March 25 this year.
At the time of publication, the dollar was back up at US92.10.
ANZ chief economist Warren Hogan told SmartCompany despite the dollar falling from the top to the bottom of its four month trading range in the last three or four days, the magnitude of the fall so far is not particularly meaningful.
“It needs to move at least 4 or 5 cents either way before it will really start to have an impact,” says Hogan.
Hogan says it was actually surprising the dollar hadn’t dropped earlier as commodity prices, particularly iron ore, have historically had a strong relationship with the rise and fall of the dollar.
“In terms of the last two or three days, it isn’t a big move in the scheme of the very stable currency we’ve seen in the last few months and is not big enough to have significant implications yet,” he says.
“But if it continues—and we think it will fall down into the mid to high 80s—that will be good for the Australian economy.”
Hogan says exporters and importers will feel the effects of a sustained drop the most.
Those exporting in Australian dollars will see more competition, while those exporting in US dollars will receive greater revenue, according to Hogan.
“On the flipside, those businesses importing say raw materials, equipment or machines will find it is more expensive,” he says.
Hogan says the Australian currency has fallen out of favour because of a confluence of factors, including the strength of the US dollar and caution from investors about simmering geo-political tensions.
“Even the issue of Scottish independence has caused murmurs around the sterling,” he says.
“There has just been a bit of momentum built up in the last few days.”
Kirsten Robb is a former journalist at SmartCompany. Previously, she worked at News Corp as a property reporter for Leader Newspapers and the Herald Sun, and holds a Masters of Journalism at Melbourne University.
