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DOLLARS RISE GREAT FOR SOME,BUT….

Dollar’s rise a mixed blessing

for Aussie firms: survey

Chris Zappone

May 20, 2011 – 11:10AM

The strong dollar is proving to be a mixed blessing for Australian businesses with some importers saying they’re passing on lower prices while exporters fret they will lose competitiveness abroad.

Tiziana Smith of Melbourne-based Mamma Lucia Cheese said the dollar’s strength has helped her company offer more specials on imported cheese from Europe in recent weeks.

“It’s not every product but certain products,” she said, adding that customers had relished getting any discounts against a backdrop of rising prices. “If you’re getting a discount, it’s better.”

Over the past year, the Australian dollar has gained about 25 US cents – or about 30 per cent – against the greenback to trade today at about 106.6 US cents. Against the euro, it has climbed 13 per cent over the period to fetch 74.5 euro cents, while the dollar is not far off its highest in 25 years against the pound, buying about 65.7 pence.

The incidence of price cutting may be spreading, according to the latest Aussie Dollar Barometer survey, conducted by Commonwealth Bank, with about half of importers polled saying they are considering lowering prices.

“We suspect intense competitive pressures in Australia are forcing some importers to consider passing on some of the benefit of the high dollar onto their customers,” said Joseph Capurso, currency strategist at CommBank.

Importers surveyed believe the dollar will peak at 114 US cents by the end of the year, while exporters are more pessimistic, tipping it to rise as high as 116 US cents by September, the survey showed.

140-year high

The federal government in handing down the budget this month said Australia’s terms of trade – the value of its exports over the value of its imports – were at 140-year highs, driven demand from Asia for iron ore, coal, gold and other commodities.

New Treasury Secretary Martin Parkinson predicted this week the Aussie dollar would stay ’’persistently high for some time’’.

’’Most Australian businesses are well equipped to deal with short-term volatility of the exchange rate,’’ he said. ‘‘But what we are dealing with now is a very different type of event,’’ he said.  ’’This will challenge a number of existing business models.’’

Priced out

Winemaker John Casella of New South Wales-based Casella Wines said his company is one exporter who will have no choice but to raise prices for customers of his Yellow Tail and other wines in the US, Canada, UK and Japan if the dollar doesn’t pull back over the coming 12 months.

“The issue for us is what effect will that (price increase) have on sales and what effect that ultimately has on what grapes we buy,” said Mr Casella. “I do expect there will be a decline in sales as the (selling) price moves up.”

About 80 per cent of exporters surveyed said they are considering price changes to account for the exchange rate movements, CommBank said.

Exporters said they began to feel the pain when the Aussie rose over 91 US cents – which happened in September of last year, the survey found.

“The contrast between exporters and importers is stark,” said Mr Capurso, who noted that no importers surveyed said they were uncompetitive when the dollar trades at 91 US cents or higher. “We are definitely at an interesting point in time for Australian businesses. The next few months will be very telling as to whether businesses have gotten their hedging strategies right,” said Mr Capurso.

Despite the lower cost of importing goods, the strength of the dollar has hurt sectors such as clothing, electronics and books, by luring consumers to overseas websites to shop directly, undercutting traditional local retail businesses.

Electronics and furniture retailer Harvey Norman flagged the strong dollar as a contributor to its weaker sales in the nine months to March 2011, when it updated the market last month.

“Significant price deflation exacerbated by the strong Australian dollar was experienced in the key laptop computer category,” the retailer said.

Woolworths-owned Big W said prices had eased between 4 to 7 per cent in the first three months of the year.

“The primary cause of price deflation has been the stronger Australian dollar with cost price reductions passed on to customers,” the company said.

czappone@fairfax.com.au


May 20th, 2011
Topic: IMPORT EXPORT, INTERNATIONAL MONEY MARKET Tags: , , , , , ,

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