Selling prices to be shaved as dollar continues to wreak havoc on exporters

Friday, 20th May 2011: The vast majority of Australian exporters are considering changing their selling prices, as the Australian dollar continues to trade at levels that are causing the sector to become uncompetitive.

According to the Commonwealth Bank Aussie Dollar Barometer report released today, almost 80% of exporters indicated that they were considering changing their selling prices (most likely a price cut), with respondents identifying their “pain threshold” of 91 US cents had been well and truly surpassed.

The Barometer tracks medium-sized importers and exporters’ exposure to the Australian dollar, their expectations for trading levels and hedging plans for managing foreign exchange risk.

According to Joseph Capurso, Currency Strategist at the Commonwealth Bank, many exporters were now closer to “biting point”, with the inflated currency forcing businesses to consider making some significant changes.

“The last time the Australian dollar traded at 91 US cents was in September 2010 – with the dollar where it is now, you can see the enormous pressure that exporters are under,” said Mr Capurso.

“By contrast, the high dollar is encouraging about half of importers to consider changing their selling prices. We suspect intense competitive pressures in Australia are forcing some importers to consider passing on some of the benefit of the high dollar onto their customers.”

The Barometer also reveals differences between exporters and importers on predictions for the currency. Exporters are most bullish about the Australian dollar and believe there is more pain to come (anticipating a peak of 116 US cents), whilst importers are the least optimistic. Despite this, those businesses that import still believe that the dollar will peak at 114 US cents by the end of 2011.

Continuing the trend seen in the last quarter, Mr Capurso said that the Barometer revealed that more businesses were planning to hedge their currency exposure.

“There has been a significant shift in the number of importers who are now planning to hedge their currency, with almost two-thirds of businesses in this space revealing that they are planning to take action. This represents a large increase from 39% of respondents one year ago.”

Despite the average exporter believing that the dollar will still climb to 116 cents, less than half are planning to hedge their currency. However, of those exporters that plan to hedge, 78% of their exposure will be hedged.

“We are definitely at an interesting point in time for Australian businesses. The next few months will be very telling as to whether businesses have gotten their hedging strategies right,” said Mr Capurso.

A full copy of the report is available on request.

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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 January 2011 edition of the Commonwealth Bank Aussie Dollar Barometer, East & Partners interviewed over 600 businesses turning over AUD 5–500 million per year. Businesses were asked a range of questions about their exposure to and views about AUD/USD. The charts at right provide information on the survey sample. East & Partners surveyed businesses from 2 to 6 May 2011. The average value for AUD/USD during the survey period was 1.08 US dollars.