Are Businesses Struggling With A High AUD v $US1?

Dollar Daze

Newcastle Accountants Leenane Templeton have been looking at the AUD and Ouch, the Australian dollar is sitting determinedly above $US1 again, twisting the knife for manfacturers who have to compete with cheap imports and exporters whose goods and services are increasingly expensive for overseas buyers.

The bad news is that Reserve Bank governor Glenn Stevens reckons that while our currency is a “bit on the high side”, it’s “probably not dramatically so”.

“I’m probably, to be honest, a little surprised that it’s not a little bit lower than it is – but we’re not talking 20 cents worth or something,” he said in his six-monthly chat to the House of Representatives standing committee on economics.

Pity, because according to the Commonwealth Bank Aussie Dollar Barometer the average exporter would quite like it to be 20 cents lower.

Uncompetitive

The quarterly barometer, which considers foreign exchange risk, reveals that about 60 per cent of exporters believe they’re uncompetitive when the $A is above US91 cents, the territory we’ve been in for two, long years now. A further 20 per cent feel the pain at just US81 cents – so it’s been a numbing three years for them.

Importers, of course, are more sanguine. Their dollar is going much further these days. Not one importer surveyed for the CBA barometer said they’d be uncompetitive at that US91 cents level, let alone today’s exchange rate.

It would take a return to the long-run average of US74 cents for 23 per cent of them to become uncompetitive, and even at US50 cents most believe they’d still be OK. When were we last at US50 cents? A decade ago now.

Hedging

So what can businesses do if they’re directly exposed to foreign exchange movements (as opposed to indirectly, via import competition)? CBA says hedging your currency exposure is one way to manage possible adverse moves versus the $US, and its survey found that more businesses plan to do so.

The barometer reveals 70 per cent of importers plan to lock in the high dollar by hedging (up from just 40 per cent two years ago). Nearly 60 per cent of exporters plan to hedge against any further rise in the $A.

Businesses that both import and export are the most willing to hedge, according to the barometer, with 80 per cent planning to do so.

How are they doing it? The two most popular instruments, by far, are forward exchange rates and options and businesses of all types and sizes use one or other, or both, of these.

However, businesses with turnover below $25 million do tend to lean towards forwards, while businesses with turnover above $150 million are more frequent users of relatively complex option structures.

Bigger picture

Another, bigger-picture response is to become more productive to offset the impact of the strong dollar. More than 80 per cent of businesses said the $A would encourage them to find ways to be more productive; among exporters the figure was 90 per cent.

And perhaps there’s a little wishful thinking in the mix too. Asked for their predictions for the $A, exporters thought (hoped?) it would be below $US1 in a year’s time, while importers reckoned it would still be above parity.

To discuss your business accounting needs speak with our Newcastle Accountants atLeenane Templeton Chartered Accountants & Business Advisors

No one can tell you for sure where the $A will go – currencies are notoriously volatile – but you can see where it’s been by visiting www.rba.gov.au. Select the Statistics tab on the home page to go to its Statistical Tables, then select Exchange Rates. Visit www.commbank.com.au/corporate/research and select Foreign Exchange to reach the Aussie Dollar Barometer.

Company Profile:

Leenane Templeton chartered accountants and business advisors was founded in 2003 by Andrew Frith and Chris Laffey and is one of the fastest growing financial service and business advisory companies in the Newcastle and Hunter region. Leenane Templeton specialises in a range of business services from tax compliance to maximising profitability and is a self-managed super specialist. Leenane Templeton has experienced significant growth over the past 6 months based on a highly successful service and an increasing client base which has been developed through client recommendation. Leenane Templeton has 20 staff located at its Head Office in Newcastle, and also has offices in Sydney and Brisbane.