08/10/2008 - 22:00

Split decision as parity hopes vanish

08/10/2008 - 22:00

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EXPORTERS in Western Australia are concerned the fluctuating Australian dollar, dropping from record highs three months ago, is affecting their bottom line.

EXPORTERS in Western Australia are concerned the fluctuating Australian dollar, dropping from record highs three months ago, is affecting their bottom line.

The dollar posted a 25-year high of US98.49 cents on July 16, but this week had dipped briefly to around US70 cents.

Some exporters relished the dropping value of the currency, making it easier to compete in overseas markets, while others have locked their businesses into costly longer-term hedging contracts set at inflated exchange levels.

Carly Rossbach, a senior associate at financial risk management firm Oakvale Capital, said a lot of people thought parity with the US dollar was a certainty.

"People were talking 'parity parties' here, but I don't think it will happen now," Ms Rossback said.

"It's so hard to pick, even day to day, what the Aussie is going to do."

Ms Rossbach said some smaller operators were facing difficult times, with those that were completely unhedged and those doing extensive conversion to spots hurting when the dollar was at its peak.

"But some have hedged and they are locked in at the slightly higher rates than what it is trading now," she said. "Volatility is incredible; the average range of the Aussie [fluctuating] per year is about 10 cents I think, and it has done that three times already this year."

This recent volatility has had an impact on some smaller exporters.

Abortech chief executive Kevin Inkster has had to overhaul his accounts as a result of the dramatic changes affecting his $3 million export business.

"The fluctuations have thrown us round a bit," Mr Inkster told WA Business News.

"In fact, we had just adjusted our account at one-to-one [with the US dollar], when it was looking at parity, and made all sorts of adjustments accordingly. Of course, with the turmoil, it has dropped back again."

But Mr Inkster, head of the Malaga-based tool manufacturer that was responsible for the hovercrafts seen at the Sydney Olympics opening ceremony, is in two minds.

"On the one hand we like it to be low because we export manufactured goods; the downside is that a lot of our components that are sourced overseas are bought in US dollars," he said.

"Timing is crucial, it's a crystal ball situation really.

"Hedging is done with the timing and building up reserves in the US account."

Margaret River Premium Meat Exports director John McLeod said securing Waygu beef contracts with his international clients had been more difficult.

"Its been quite difficult actually, in that trying to fix contracts with Japan for instance, we would normally be doing contracts for six-month periods," Mr McLeod said.

"We were in the process of negotiating the next six-month period when all this happened and the dollar started falling out of bed."

Exports make up about 90 per cent of Mr McLeod's business, equating to $6 million in revenue.

"When you're talking about a fixed price and the exchange rate is moving two or three cents every day, it's harder to negotiate things and knuckle things down because you just don't know what's happening or where it's going," he said.

"And you don't want to miss out on picking up some extra dollars if the opportunity is there."

But he doesn't get involved in hedging.

"I don't try and play the money market as such, I just try to lock in the margin we've negotiated on the day we do the contract," Mr McLeod said.

However, other exporters have felt little or no effect from the oscillating dollar.

Milner International College of English director, Warren Milner said his business, which is totally driven by exports, hasn't been significantly affected by the fluctuations.

"Our business is a little different in the sense that sometimes we benefit when there's a depression or recession or whatever overseas," he said.

"We've got students from around 25 different countries, so while some are up others are down and vice versa, so it tends to level itself out anyway."

 

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