Borrowing appetite wanes as Aussie dollar continues to hurt exporters
EMBARGOED UNTIL 00.01 (AEST) 14th March 2012: A large number of Australian exporters are pulling back on their borrowing intentions in response to the continued strength of the Australian dollar, according to the latest Commonwealth Bank Aussie Dollar Barometer.
The high Australian dollar is having a marked impact on borrowing appetite in different sectors. Over 40% of exporters (41%) reported that the high Australian dollar had decreased their appetite to borrow. The high dollar appears to be having a more defined effect on the borrowing appetite of smaller businesses over large businesses. A net quarter (25%) of businesses with turnover of $5-25 million indicated they were less likely to take on additional debt. Larger businesses, however, revealed that the high Australian dollar was increasing their appetite to borrow (14%).
The Aussie Dollar Barometer tracks importers and exporters’ exposure to the Australian dollar, their expectations for trading levels and hedging plans for managing foreign exchange risk.
As witnessed in previous Barometer reports, importers continue to benefit from the strength in the local currency, with over half (55%) reporting that the high dollar had boosted their appetite to borrow. In broader terms, those businesses in the financial sector (mainly asset managers and insurance companies) have been particularly encouraged by the state of the dollar, with over two-thirds indicating an increase in appetite towards borrowing (68%).
According to Joseph Capurso, Currency Strategist at Commonwealth Bank, the latest findings were consistent with recent Barometer reports that have shown how businesses were being forced to adapt to a more prolonged shift in market conditions.
“Over past quarters we have seen a marked change in the way export businesses are adapting their operating models, with capital spending plans and workforce size all coming under the spotlight,” said Mr Capurso.
“For some time now, a very clear message from the Barometer is that more businesses are hedging to try and control the effect of the dollar on their business. Many businesses are realising that the dollar is likely to stay at these higher levels and that what we are experiencing is not just a ‘flash in the pan’.”
The Barometer revealed that since August 2011, only two of the 553 businesses that reported they would hedge did not execute their plans, equating to 99.6% of businesses that followed through with their planned hedging activity.
Looking forward, over two-thirds (68%) of businesses with annual turnovers of $25-150 million plan to hedge, compared with only 40% in July 2010. This remains consistent with this group’s view towards the future performance of the dollar, with respondents on average believing that it will peak at US$1.12 by the end of September 2012.
Most large businesses (those with a turnover of $500 million and above) believe the dollar will ease in September and end the year at US$1.03. As a result, 70% of businesses in this space are planning to hedge, down from 77% in the previous quarter.
“The behaviour of many Australian businesses is to still be reactive, rather than proactive when it comes to managing foreign exchange exposure”, said Mr Capurso.
“The amount they hedge is influenced by recent movements and volatility of the currency, meaning there appears to be little planning put in place to manage currency risk. Businesses are in turn leaving themselves open to potential future adverse movements in the Australian dollar and may wish to consider taking a more proactive stance towards currency hedging.”
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 March 2012 edition of the Commonwealth Bank Aussie Dollar Barometer, East & Partners interviewed almost 900 businesses turning over at least AUD$5 million per year. The interviews took place between 13-17 February. Businesses were asked a range of questions about their exposure to and views about the US$. The charts provide details on the survey sample.