Home' Border Enterprise : Enterprise Spring-Summer 2009 Contents 40 enterpris e
THE Aussie dollar evokes different
emotions and reactions from
consumers, investors and businesses.
For consumers the high level of the
currency is viewed positively, the
perception being that it will translate to cheaper
international travel and cheaper imported goods.
Of course that remains to be seen. It depends on
a number of things, especially competition. But in
today's internet-driven world, if retailers drag their
heels in cutting prices, consumers will increasingly
look to buy the goods overseas.
In fact the CommSec iPod index has found that
consumers could save as much as $20 by buying
their iPods on websites in the US or Hong Kong or
on holidays in those countries.
But while consumers generally view the strong
Aussie positively, certainly it isn't viewed as an
unambiguously positive event by investors and
businesses. Retailers certainly benefit from a firmer
currency as do media companies. But for those
companies with substantial overseas operations,
the firmer Aussie dilutes foreign revenues and
And for Aussie businesses more broadly, the
higher currency creates challenges for the rural
and tourism sectors, manufacturers and exporters
Some may believe that the firmer currency is a
temporary development. Perhaps. But there are a
number of factors to consider.
Certainly the Aussie dollar has only recently
returned to the US90 cent range after a sojourn to
the low US60's earlier this year. And the currency
is being supported by the fact that our economy
is doing a lot better than others. Interest rates in
Australia are also higher than overseas and are
rising. So it is understandable that some may see
the firmer dollar as a temporary development while
other economies catch up.
But there are also the longer-run factors at work.
Australia is arguably the biggest beneficiary from
industrialisations underway in China and India.
Those economies will place huge demands on the
world's resources in coming years -- and many of
those resources or raw materials will be supplied
Since the Aussie dollar floated in December
1983 it has averaged US72 cents.
But over the past three years, the
Aussie dollar has been much higher,
averaging just under US82 cents.
And for a fifth of that time the Aussie
dollar has held above US90 cents.
The bottom line is that investors
and businesses need to redo their
sums. The Australian economy will
be increasingly driven by the fast-
growing Asian nations over coming
years. These nations will seek raw
materials from Australia and that
will drive more investment dollars
into our economy, underpinning the
If the Aussie averages US80c or US85c in the
future, it will substantially boost prospects and
profitability for some firms while actually bringing
into question the potential viability of other
businesses and even entire industries.
Mining, transport and construction should
continue to grow in coming years. But
manufacturing, some sections of the rural sector
and utilities are likely to decline in importance.
Both the Reserve Bank Governor and Treasury
Secretary have warned of the major structural
changes that lie ahead for Australia as a result
of the industrialisation underway in China. More
Australians need to take heed of the warnings.
Craig James is CommSec's chief economist.
SWINGS AND ROUNDABOUTS
While consumers are
benefiting from the
strong Aussie, it isn't
entirely good news
for businesses, writes
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