IT is a concern that was all but forgotten for Western Australian businesses, but with the Australian dollar now sitting on 40-month highs, exporters are redoing their sums to work out their break even points.
WA, which accounts for 25 per cent of Australia’s export volumes is particularly vulnerable, however, many companies have hedged their currency positions for contracts signed in US dollars.
While breaking the US66 cent barrier earlier this week for the first time in more than three years, the impacts of the rising dollar are already showing on the screens.
Preliminary Statistics for 2002 from the Department of Industry and Resources shows that record production levels were eroded by the double whammy of falling commodity prices and an appreciating Australian dollar.
As a result the value of WA’s resources sector decreased 0.1 per cent for the year, in contrast to the record growth of 51 per cent two years ago.
Association of Mining and Exploration Companies chief executive George Savell said the appreciation was having a significant impact on resource companies.
“We are watching the Aussie dollar obviously very closely to see what the impact would be on our members,” he said.
“But people have been keeping the impact pretty close to their chests.”
The larger exporters are also not immune.
BHPBilliton spokesman John Crowley said the rise in the Australian dollar would have an impact on all exporters including BHPBilliton.
Woodside Petroleum is also sensitive to both the dropping oil price and the exchange rate.
Woodside states that a 1 cent appreciation in the Australian dollar results in a $12 million decline in its net profit after tax.
Paterson Ord Minnett analyst Andrew Driscoll said the large mining houses were often the first to be punished by a drop in investor confidence with future profitability forecasts.
“Rio Tinto and BHPBilliton have dropped back 20 per cent since January and most of that is currency related,” he said.
Earlier this week Rio Tinto fell below $30, down from $35 in January while BHPBilliton was trading at $8.28 down from its recent high of $10.30 earlier in the year.
Jubilee Mines NL, which has been enjoying strong nickel prices, fell back 5 per cent earlier this week on concerns with its unhedged position.
He said gold stocks were largely immune thanks to strong US gold prices.
The rise in the dollar is reflected in the Australian share price index.
ANZ economist David de Garis said the local equity market had been lagging the turnaround in the US equity market. The ASX 200 index has declined 1.6 per cent for the year to date compared to a 7.6 per cent increase in the S&P 500, a rise of 16.2 per cent in the Nasdaq and a 4.5 per cent rise for the Dow.
ANZ is setting new targets for the Australian dollar. By the end of the year, the bank is forecasting that the Australian dollar versus the US dollar will appreciate to 68 cents and will break through 70 cents in the first quarter of 2004.
Previously, ANZ had forecast the dollar to reach just 65 cents by year’s end.
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