High Aussie dollar opens doors for offshore expansion for one third of large businesses
30 November 2011: One-third of large businesses would establish offshore operations as a result of the high Australian dollar, according to the latest Commonwealth Bank Aussie Dollar Barometer which now also surveys the 500 largest businesses in Australia.
Similarly, 37% of exporters are also considering establishing offshore operations, while more than two-thirds of small to medium businesses prefer to retain their operations domestically.
Joseph Capurso, Currency Strategist at Commonwealth Bank said: “Not surprisingly, large businesses with greater financial strength are looking in larger numbers to establish offshore operations. However it’s not clear if the offshore strategy is to buy cheap foreign assets or to shift to cheaper locations,” he said.
The Aussie Dollar Barometer reveals 27% of small to medium businesses are increasing their investment plans while exporters are cutting them due to the high Aussie dollar.
“The high Australian dollar has the benefit of reducing the cost of imported capital equipment, but the downside for exporters is a reduction in international competitiveness,” Mr Capurso says.
Alternatively, for large businesses there is a vast difference in investment plans operating in different sectors.
For example, 28% of large resources and energy businesses report the high Australian dollar is encouraging them to increase investment. By comparison, only 18% of large businesses in consumer discretionary (excluding media) and consumer durables state the high dollar is encouraging them to decrease investment.
“The high Australian dollar is clearly having a negative impact on those sectors that are exposed to competition from imports such as manufacturers,” Mr Capurso adds.
For hedging, the larger the business, the more hedging is done. Over the next three months, 77% of large businesses plan to hedge their US$ exposures. By contrast, less than 60% of businesses that only import or only export, plan to hedge their US$ exposures.
The Aussie Dollar Barometer shows importers expect the Australian dollar to peak at $1.09 by end-March 2012, while exporters and businesses that import and export expect the Australian dollar to peak at $1.07.
“The deteriorating global economic outlook has pushed the Australian dollar down from post-float highs near US$ 1.11 to less than parity.
“If the global economy deteriorates further, the Australian dollar may not reach the very high levels expected by Australian businesses, which may leave unhedged importers exposed to unexpectedly higher costs,” Mr Capurso concluded.
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About the Aussie Dollar Barometer
The Commonwealth Bank Aussie Dollar Barometer is prepared every three months based on a survey conducted by East & Partners. East & Partners is a market research and advisory firm.
For the November 2011 edition of the Commonwealth Bank Aussie Dollar Barometer, East & Partners interviewed almost 900 businesses turning over at least AU$5 million per year and 500 large businesses with annual turnover of more than AU$500 million. Businesses were asked a range of questions about their exposure to and views about the US$.
 The large businesses surveyed have annual turnover of at least $500 million and may be Australian or foreign-owned, listed on a stock exchange or unlisted.