Foreign Exchange: Aussie Dollar Barometer

Is the High Australian Dollar ‘Biting’?

The barometer reveals the level of the Australian dollar that businesses believe causes them to become uncompetitive. The point of maximum pain for exporters is when the Australian dollar pushes above 91 US cents (red bars on chart 1). The last time the Australian dollar traded at 91 US cents was in September 2010. The bottom line: exporters are hurting at current levels of the Australian dollar of around 106 US cents.

Not surprisingly, the contrast between exporters and importers is stark. No importers surveyed in the barometer reported becoming uncompetitive when the Australian dollar is trading at or above 91 US cents. But if the Australian dollar trades near its long run average levels of 74 US cents – as it is likely to one day – most importers say they will become uncompetitive (green bars on chart 1).

Figure 1: At What Level Does Australian Dollar Bite?

Source: Commonwealth Bank

 

It appears the big lift in the Australian dollar is causing many businesses to consider changing their selling prices. Almost 80% of exporters indicated the high dollar is forcing them to considering changing their selling prices (chart 2). We infer that the high Australian dollar, by reducing their competitiveness on international markets, is forcing exporters to consider cutting their selling prices.

Figure 2: Australian Dollar Impact on Selling Prices

Source: Commonwealth Bank

 

By contrast, the high dollar is encouraging only half of importers to consider changing their selling prices. We suspect competitive pressures in Australia are forcing some importers to consider passing on some of the benefit of the high dollar by lowering prices to their customers.

Aussie Dollar Predictions

The Aussie Dollar Barometer reveals that small and medium sized enterprises (SMEs) expect the Australian dollar to remain well above parity with the US dollar this year and into 2012. SMEs also expect the Australian dollar to reach new post-float records.

Exporters are the most bullish about the Australian dollar. The average exporter expects the Australian dollar to peak at 116 US cents at the end of the September quarter (red line in chart 3). The last time the Australian dollar reached 116 US cents was in September 1981 (before the Australian dollar was floated in 1983).

Importers are the least optimistic about the Australian dollar. But importers still expect the Australian dollar to peak at a new post-float record of 114 US cents at the end of 2011 (green line in chart 3).

Businesses that both export and import expect the Australian dollar peak at 115 US cents by the end of 2011 (blue line in chart 3).

Figure 3: Australian Dollar Barometer Predictions

Source: Commonwealth Bank

 

Managing Currency Risk

Hedging currency exposure is a way of managing possible future adverse changes in the currency. Compared to past Barometer surveys, the May Barometer shows that more businesses plan to hedge their currency exposure.

The Barometer reveals 64% of importers plan to hedge their AUD/US$ exposure over the next three months (green line in chart 4). By comparison with the results one year ago, only 39% of importers planned to hedge their exposure. The Barometer also reveals, of those importers that plan to hedge, 61% of their exposure will be hedged (green line in chart 5). It appears that a growing number of importers are hedging their exposure in an attempt to lock in the benefits of the strong currency before their predicted fall in the Australian dollar.

Figure 4: Plans to Hedge

Source: Commonwealth Bank

 

By comparison, 48% of exporters plan to hedge their AUD/USD exposure (red line in chart 4). However, of those exporters that plan to hedge, 78% of their exposure will be hedged (red line in chart 5).

Businesses that both import and export remain the most willing to hedge their AUD/USD exposure. The Barometer reveals that 66% of these businesses plan to hedge (blue line in chart 4), and 72% of their exposures will be hedged (blue line in chart 5).

Figure 5: Hedge Proportions

Source: Commonwealth Bank

 

About the Aussie Dollar Barometer

The Commonwealth Bank Aussie Dollar Barometer is prepared every three months based on a survey conducted by East & Partners. East & Partners is a market research and advisory firm.

For the May 2011 edition of the Commonwealth Bank Aussie Dollar Barometer, East & Partners interviewed over 600 businesses turning over AUD5–500m per year. Businesses were asked a range of questions about their exposure to and views about AUD/US$. The charts at right provide information on the survey sample.

East & Partners surveyed businesses from 2 to 6 May 2011. The average value for AUD/US$ during the survey period was 1.08 US dollars. By comparison, the AUD/US$ averaged 1.00 US dollars in the February survey.


Source: Commonwealth Bank

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