The dollar may be rapidly dropping towards parity for the first time in a year, but exporters aren’t necessarily happier, with a leading industry group saying its members want stability rather than a cheaper currency.
The warning comes alongside news the dollar has fallen towards parity since the Reserve Bank cut the official interest rate to 2.75% earlier this week.
It also comes alongside increased speculation the dollar is set to fall. Billionaire George Soros is said to be behind a billion-dollar bet earlier this week regarding the RBA cut, while high-profile hedge fund manager Stanley Druckenmiller said earlier this week the Australian dollar will “come down hard”.
This morning, the dollar was sitting at just above parity, at $1.0097 at 9.35 AEST.
Ian Murray, the executive director of the Australian Institute of Export, told SmartCompany while the drop in the dollar was welcome, it’s not what the industry wants most.
“What we like is stability,” he says.
“At the end of the day, we like if the dollar goes down, but as long as it stays down. Having big movements in the dollar is not in anyone’s best interests.”
“Obviously a downward movement is always acceptable to us, but only if the dollar is going to stay down.”
Exporters prefer long-term stability, as contracts are usually signed to last for a significant period of time. If the dollar moves dramatically in either direction, exporters find it harder to create a sustainable business plan.
As a result, the higher dollar isn’t necessarily as much of a problem as dramatic fluctuations in currency valuations.
Murray says, in any case, none of the movements over the past couple of days will have any significant impact on many companies.
“You’re talking about movements of two or three cents, and really to talk about anything moving of any great significance, you want to see a 10 cent move, and then have it stay there,” he says.
The dollar has been the target of significant investment over the past few years, as interest rates have remained above the rest of the developed world. As much as exporters would love to see the dollar continue to fall, that’s not likely to happen.
Economists such as CommSec expect while the dollar will continue to fall as the American economy recovers, for now, the higher exchange rate will remain in place.
“We’re still 2.5 percentage points ahead of a lot of places,” says Murray.
“When you look at the sort of countries which are offering reasonable interest rates, Australia has one of the highest.”
“The issue isn’t the dollar dropping a little. It’s staying there for a longer period of time.”
Read OzForex analyst Jim Vrondas’ Indecent Exposure blog for SmartCompany to keep up to date with currency exchange news and issues.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
Comments