Cruising currency creates considerable concern

The persistently higher value of the Australian dollar is causing considerable difficulties for Australian exporters.

The value of the AUD reached one US dollar early in 2011 and at one stage reached about $1.10. It has since fluctuated around similarly high levels. The Trade Weighted Index has followed the trend, moving between 70 and 80 during the past two years.

A number of factors contributed to the appreciation of the dollar. Strong demand for commodities, particularly from China, meant that extra Australian dollars were demanded to pay Australian companies for them, thus driving up the price of the AUD.

However, even after a slowdown in China, the dollar has remained high. Market strategists such as Andrew Taylor¹, believe that the sustained high demand for the dollar is largely coming from international investors who are keen to buy Australian government bonds because of their high security.

The resulting high value of the AUD is hurting many of Australia's exporting businesses, because it effectively increases the price of their product to overseas buyers. Many exporters are losing business as a result. For example, according to Queensland's Chamber of Commerce and Industry², nearly 'two-thirds of Queensland businesses have been negatively impacted by the ongoing strength of the Australian dollar...' It cites the manufacturing and tourism industries as worst hit.

The Governor of the Reserve Bank of Australia, Glenn Stevens, says 'we shouldn't wish too quickly for a low exchange rate' ². Referring to the lower prices that consumers are now charged for imports, he said that 'as consumers, the exchange rate is one of the devices that is imparting to us the higher wealth that the mining boom brings.' ³

Mr Stevens also offers advice for the struggling exporters: improve your productivity. He believes that '...the test really is: how many of those enterprises can get their productivity up because that's really the way out in terms of a higher exchange rate.' ³

By being more productive, Mr Stevens argues, Australian exporters will be able to produce the same goods and services more cheaply, thus making their exports competitive again.

With many predicting the high value of the dollar to be sustained for quite some time, a failure or inability to improve productivity may see a major restructure of Australia's industry base.

1.Andrew Taylor ‘Why the Aussie dollar remains stubbornly high’ (September 3, 2012), The Bull @ http://www.thebull.com.au/articles/a/31116-why-the-aussie-dollar-remains-stubbornly-high.html Retrieved September 3, 2012

2.'High Aussie dollar sinks Queensland manufacturers and exporters' (August 23, 2012) Chamber of Commerce & Industry Queensland @ http://www.cciq.com.au/news/high-aussie-dollar-sinks-queensland-manufacturers-and-exporters/ Retrieved September 3, 2012.

3.Clancy Yeates & Philip Wen (reporters) ‘Reining in high dollar vetoed' (August 18, 2012), Sydney Morning Herald @ http://www.smh.com.au/business/reining-in-high-dollar-vetoed-20120817-24e2u.html Retrieved September 3, 2012.