A$ strength concern

SHOULD exporters and financiers worry about the rising dollar as it heads toward 60 cents? Australian Trade Commission chief economist Tim Harcourt believes it all depends on your business.

“In the commodity sector, the exchange rate’s influence is different than it is in manufacturing,” he said. 

“It depends on whether contract prices are set in US dollars only and on Australian suppliers’ capacity to affect the overall price level.

“Its impact also depends on export finance and the degree to which exporters can hedge against exchange rate.

“In tourism, it will have differing effects on inbound and outbound visitors.”

For those involved in manufacturing, Mr Harcourt said it depended on whether the export business was irregular or regular.

“Irregular or ‘opportunistic’ exporters only enter foreign markets when the domestic market is depressed, or if there are significant price or exchange rate incentives,” he said.

“A lower dollar could entice these irregular exporters in to clear excess stock. The higher dollar would then prompt these companies to drop out of exporting.”

On the other hand regular exporters, for whom exporting is a core part of business, do not react to the exchange rate in the same way as their opportunistic counterparts.

“Basically, these businesses undergo various fixed costs to establish a ‘beach-head’ in overseas markets. They stay in these markets [even if the exchange rate rises] in order to establish their brand and reputation,” Mr Harcourt said.

“Once they have done so, they recover the costs sunk into establishing themselves and often make it possible for other Australian exporters to also enter the market.”

So, Mr Harcourt believes that the moderate rise in the dollar is no cause for alarm.

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