WITH the Australian dollar punching through 72 US cents, the effect on WA exporters should not be underestimated – but it is not all bad news.
The improving global economic outlook and the State’s commodity profile, which is influenced by resources that have experienced strong price increases compared to the national export profile, means an appreciating Australian dollar is bringing good news for some of WA’s exporters.
However, the agricultural sector and smaller producers remain the hardest hit, with effects of the drought and the Australian dollar continuing to have a negative impact.
Chamber of Commerce and Industry chief economist Nicky Cusworth said the composition of WA’s exports and their recent price trends had contributed to the unexpected sheltering of WA from the usual pressures associated with an appreciating dollar.
Ms Cusworth said that about a third of WA’s commodity production was petroleum-related products such as oil, gas and condensate, which were often driven less by market fundamentals than by geopolitical factors.
WA’s overall commodity price index has tracked the movement in world oil prices quite closely in the past two years, she said.
Further, other important WA export commodities including gold, nickel and iron ore have recorded stronger world prices in recent months, Ms Cusworth said.
“These price movements mean that WA’s export prices and terms of trade have improved in recent quarters, in marked contrast with the national picture,” she said.
This contributed to a rise in WA’s export figures, which have risen 11 per cent in 2002-03 and a widening of the State’s trade surplus by $644 million to $23.1 billion against the national trend.
However, Ms Cusworth said the picture wasn’t all rosy for WA, particularly the farming sector, which had experienced negative effects from a higher Australian dollar.
Also significant is the potential to undermine the viability of key investment projects, such as the proposed $2 billion methanol plant on the Burrup Penninsula which was scaled down before being ultimately scrapped in recent months.
Methanex, the proponent of the project, cited a rising Australian dollar as one of the contributing factors for the decision, among other things.
Curtin University’s Institute for Research into International Competitiveness director Peter Kenyon said exchange rate movements only affected trade over a period and that larger exporters, such as those in the resources sector, hedged and shielded themselves against short-term fluctuations.
However, Professor Kenyon said smaller exporters were more likely to be affected by a fluctuating Australian currency.
He said a lower Australian dollar in recent years had allowed smaller Australian exporters to be competitive and to break into markets, however, factors such as branding, product quality, surety of supply and market knowledge were also significant factors contributing to success in overseas markets.
“Although important, currency is not as important as you would imagine,” he said.
Professor Kenyon said he expected the Australian dollar to stablise around US68 cents.
“Pundits have looked at what the dollar should be doing and the consensus is that the true value of the Australian dollar is around US68 cents,” he said.
“There is an argument that it may have overshot its long run value based on market fundamentals. All asset markets do this.”
In early July, the Australian dollar reached a five and a half year high of US68.5 cents before falling sharply by around US4 cents within two weeks.
It appeared the Australian dollar had stabilised, but that was short-lived. It rose above US70 cents on October 22.
Despite all the doom and gloom, Australia’s exporters remain bullish.
About 60 per cent of Australian companies are confident that there will be an increase in export orders next year.
Results of the Export Barometer survey released this month show that the Iraq war, terrorism and SARS have done little to dampen the long-term outlook of Australian exporters.
The survey, conducted jointly by Austrade and DHL, was based on a random sample of 318 companies in manufacturing, retail, transport, storage, hospitality, banking and insurance industries.
The survey was designed to analyse export confidence in the Australian market and identify export trends.
Austrade chief economist Tim Harcourt said the rising Australian dollar was having an effect.
“After such a hard year with SARS, Iraq, terrorism and a slow global economy, exporters across all industries are relatively optimistic.
This is good news for Australia, particularly when the Reserve Bank has predicted an upturn in the global economy – particularly in the US and Asia – in 2004,” he said.
“The strong dollar is having an effect, but those industries that are the most affected by a rising exchange rate know what measures they can take.”
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