Thursday 20th June

The Pulse

Dollar Daze

Written by
Paul Hassing

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11
Nov

The Australian dollar advances.

But are we winning?

As I write this, one Aussie dollar buys $1.0027 US dollars.

Depending who you talk to, this is great news or terrible news.

I’ve read so many reports, I’m not sure how this affects business as a whole.

Let’s break it down to see what we can learn.

Good News

It’s now cheaper than ever to go to Bali (if you’re into that sort of thing).

Bad News

As our citizens exit the country in droves, Australian tourism operators are getting hit for six.

Good News

You can now buy Victoria’s Secret undies like they’re a box of tissues.

Bad News

Local bricks-and-mortar retailers are losing out big time, as customers take their business online.

As if these shops didn’t already have enough to cope with after the GFC, several interest rate rises and a loss of main street parking to peak hour clearways!

Good News

Big, new, fancy TVs are getting cheaper and cheaper.

Bad News

Old technology is worth bugger all, so people are dumping it on the street – with dreadful environmental consequences.

Good News

A strong dollar is helping our national accounts, or debt, or something.

So they tell us.

Bad News

When I worked in automotive engine manufacturing, each time the dollar went up a cent, it wiped at least a million bucks off annual profit.

And when it rose a few cents in a row, contracts went to Brazil, Eastern Europe or South Korea.

Being in HR, I had to tell our people they were out of a job.

My News

Well, that’s my take on this fiscal frivolity. It’s varied, personal and unauthoritative.

Your News

I don’t imagine any one of us has a definitive answer as to whether, on balance, a high dollar is good or bad for business.

I do, however, suspect that if we all throw in our two cents, my wish for a clearer picture may be granted.

To this end, I’d greatly value your contribution.

In other words,

the buck stops

with you.

Paul Hassing, Founder & Senior Writer, The Feisty Empire

AU dollar, business, business advice, dollar, exchange rate, export, financial market, import, US dollar

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What others are saying

Author

Paul Hassing

November 11, 2010 at 9:26 am

One more thing I just thought of is petrol. I’m paying 20 to 30 cents less per litre than I was six months ago. This is good for me, but not too flash for the planet if I start riding my bike less as a result.

I wonder if a high Australian dollar is good for sole petrol station owners or big oil corporations. I welcome your thoughts.

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Author

Paul Hassing

November 11, 2010 at 9:32 am

This article is relevant to this post (and this one):

http://www.watoday.com.au/small-business/trends/local-businesses-told-to-compete-online-20101110-17mds.html

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Author

Naomi from MYOB

November 11, 2010 at 9:34 am

Thanks for another thought provoking post Paul!
As there are 2 sides to the coin, like you, I’m also keen to hear how this is affecting business owners and the bottom line.

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Author

Paul Hassing

November 11, 2010 at 9:36 am

Thank you, Naomi. I try to be relevant at least once a quarter!

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Author

Paul Hassing

November 11, 2010 at 9:38 am

And finally … I’ve been hearing that Australian women are going nuts on sites like Net-A-Porter, because luxury goods are suddenly ‘affordable’. Any truth to the rumours?

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Author

Susan Oakes

November 11, 2010 at 9:43 am

What I hear is good for consumers, bad for exporters. Also I read this morning that China is being criticised by the US. It is thought they are deliberately keeping their currency low to improve trade.

Last year part of my sales were in US dollars and I liked the difference. If I were still doing the same and depending on the income this year I would have a big difference in the bank.

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Author

Paul Hassing

November 11, 2010 at 9:48 am

Hi Susan! Yes, that currency war is a murky caper. I don’t quite grasp it.

I recall getting my first Squidoo payment when the AUD$ was very low. A whopping $6.24. I didn’t realise this was in US dollars until it burgeoned by 30% in my bank account.

Such tiny miracles keep the passive income seeker alive! Thanks for visiting us, Susan.

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Author

Leon Noone

November 11, 2010 at 9:58 am

G’Day Paul,

The strong dollar means that books and CDs I buy on Amazon are less expensive. Given my recent sad experience trying to use Dymock’s online, especially compared with the Fantastic amazon service, I’m inclined to think I’d stay with Amazon anyway.

I’m sure that the fluctuating $ causes problems for some businesses. But there’s a bigger issue. It’s what I call “single factor myopia” One factor changes and all sorts of effects are ascrnibed to it. You know the sort of thing;” if you eat ‘too much ‘ peanut butter it’ll kill you.” No mentip’s ever made of all the rest of the stuff you eat.

But I’m just an old salesman trying to make a quid.

Make sure you have fun.

Regards

Leon

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Author

Paul Hassing

November 11, 2010 at 10:04 am

For an old salesman, you’re pretty good at teaching us new tricks, Leon. Thank you kindly for your 2010 visions.

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Author

Sarah Mitchell

November 11, 2010 at 10:31 am

Hi Paul,

Having one foot in each of the camps (I was born in the USA to quote The Boss), I probably have a different view than most people. I have my retirement funds in the USA but all my business/income/assets are all in Australia.

You’ve painted a fairly balanced picture but have left out on critical point. A lot of Australian businesses are seeing the strong dollar as an opportunity to rip off their clients. (Do I hear a Kaa-CHING at the petrol pumps?) They’re sourcing their goods at a much cheaper rate but not passing on the savings. I’m STILL paying a huge amount for American denim, hair care products, paint – you name it.

If retailer consider the strong dollar “Boom Time” without passing on the savings to their clients, they’ll lose customer goodwill and breach any level of trust they’ve earned. We’re not stupid. As you rightly point out, the internet is providing lots of opportunities for the consumer to cash in, too.

Great post, Paul.

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Author

Paul Hassing

November 11, 2010 at 10:37 am

What a great comment, Sarah! You’ve spanned time, geography, economics and culture. Thanks so much for broadening our horizons thus.

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Author

Malcolm Owens

November 11, 2010 at 10:53 am

Hi Paul,

With most things in life there is good and bad as you correctly point out. For business generally it has been a good thing. As our level of local production continues to dwindle and we rely so heavily on inputs the cost of imported goods has reduced significantly.

This has resulted in many companies posting a positive gain in their P&L under foreign exchange (FX) gain and to a certain extent allowed us to exit the recessionary period quicker. Of course not all the cost savings are passed on so the advantage has been to stabilise companies and secure jobs. These benefits are coming into play now as most companies would be coming to the end of pre existing forward cover arrangements and take advantage of the lower spot rates.

The down side comes with our ‘2 speed economy’ where we also rely heavily on mineral exports to the world and particularly China. These are paid for in US$ so the relative price received is lower. This will no doubt slow this sector so we are seeing a cyclical shift based on currency fluctuations.

It wasn’t so long ago that the exchange rate was around $0.50 so the impact is significant. As you say Tourism is the big loser in all this. So lower retail prices on imports, particularly electronics, will see a solid trading period coming into Christmas for the likes of Harvey Norman and JB Hi Fi.

The Reserve Bank must be concerned as they increased the interest rates to slow the economy and of course the banks have done their part to destroy consumer sentiment just as we were looking at a recovery.

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Author

Paul Hassing

November 11, 2010 at 11:08 am

We are indeed fortunate to have your perspective, Malcolm. It sounds like you’ve got a very good grip indeed on this slippery subject. Thank you for favouring us once again with your comment.

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Author

Adam Finlay

November 11, 2010 at 11:20 am

Chinese and US currencies are artificially supported anyway (China’s pegged to the USD, and the USD is being ‘pump primed’). So it’s swings and roundabouts on a twisted playing field no matter which way you spin. Free and fair trade based on equitable international currency markets is a furphy any which way you slice. Have a Google about the NAFTA and the Mexican agriculture sector.

It’s good to see you addressing the big economic questions though Paul.

I’ll buy that for a dollar.

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Author

Paul Hassing

November 11, 2010 at 11:32 am

Thanks, Adam. I’m starting to feel like a roadie for the main touring act. You guys know SO much more about this stuff! But what the hey; so long as our readers learn something, it matters not whence it comes.

Every time I hear the term ‘quantitative easing’ I see wheelbarrows of 1920s Reichsmarks being exchanged for half a loaf of bread.

Sold! To the man with the doggie who was on the telly recently.

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Author

Stephen Hamilton

November 11, 2010 at 11:44 am

My take:
On a personal level, I love the strong AUD$. I’m going to the states next year, so I’ll get more bang for my buck. Imported ‘consumer’ products are also much cheaper.

On a business level, it is having a varied effect. Many of my customers are exporters, so they’re doing it tough. My clients who are importing are doing well. Generally, there is an air of uncertainty that is holding up some new business.

On a national level, it seems to me that as Australia is a nation that relies upon exporting raw materials we are in trouble. But is the problem a strong currency, or that we are so reliant on primary industry exporting? I feel more needs to be done to encourage tertiary industry.

That’s my two cents. I

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Author

Paul Hassing

November 11, 2010 at 11:48 am

Thanks, Stephen. We’ve had a great week of comments from you. Do you plan to sock away some USD now, or will you take a punt on the AUD going as high as $1.10?

Your two cents is now worth 50 Linden Dollars. Thanks for giving us such a measured response!

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Author

Paul Hassing

November 11, 2010 at 11:54 am

Golly. With this kind of action, no wonder everyone’s engines are wearing out!

http://www.theage.com.au/business/passenger-numbers-hit-record-for-melbourne-airport-20101111-17obs.html

Imagine if everyone holidayed at home one year. How quiet it would be …

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Author

Malcolm Owens

November 11, 2010 at 12:10 pm

Following on from Adams comments we all have to realise that the US is still a major basket case. Simply printing more money is not a long term recovery strategy and we are seeing the affects of that in the exchange rates now.

China’s economy is moving inwards now – local consumption and growth rather than relying exclusively on production exports. There is already talk of floating the Yuan which will then further impact the US$.

The one factor we haven’t yet discussed is the growing strength of the Euro as a standalone currency. Even now we are being quoted Euro prices out of China as it remains a stable currency. We have been very fortunate that our dollar’s growth has also reduced the cost of dealing with European suppliers as well.

Businesses would be foolish to peg their current performance and cost base on currency gains and I for one have asked our accounts to run 12 month costing scenarios based on a varying (worsening) exchange rate.

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Author

Paul Hassing

November 11, 2010 at 12:54 pm

That does it … I’m starting a hedge fund!

Fifty bucks for the average courtyard garden.

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Author

Paul Hassing

November 11, 2010 at 1:52 pm

Speaking of manufacturing …

http://www.theage.com.au/business/a-blamed-for-caterpillar-job-losses-20101111-17obt.html?rand=1289437366876

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Author

Micky Stuivenberg

November 11, 2010 at 3:47 pm

Hi Paul,

Having lived in a number of different countries in my life and with friends, family and clients across the globe, I also monitor the currency fluctuations quite carefully.

For anyone taking their Aussie dollars out of Australia, sure, what’s happening at the moment is great, but for the Australian economy and businesses here – including tourism, as you mentioned, it’s not so good.

I agree with Sarah who, in her comments above, talks about the savings not always being passed on. With the dollar rising that fast, aren’t prices of petrol, PCs and other imported goods and gadgets supposed to be visibly falling? I don’t see that happening.

Personally, our business gets a fair bit of work from overseas, which means our earnings in Aussie dollars are down. I have just changed the US$ prices quoted on my website again and now put them on par with my AU$ rates. It was not long ago that it was very attractive for companies in the US for instance to outsource web copywriting work to me, a content writer in Australia, but businesses in Australia have now sadly lost that competitive edge, internationally.

Anyway, like you concluded, there are good sides and bad sides to this issue, but I’d prefer the dollar to be back at around $0.85!

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Author

Paul Hassing

November 11, 2010 at 3:52 pm

What a day we’re having for brilliant comments! Thanks to you too, Micky, for adding another thread to our growing tapestry. I can see a picture forming …

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Paul Hassing

November 15, 2010 at 7:12 am

‘The fallout from the global financial crisis and a soaring Australian dollar have resulted in fewer than half that number of fans arriving here this summer. Tourism Australia estimates that fewer than 20,000 cricket fans will visit Australia.’

http://www.theage.com.au/sport/cricket/tickets-galore-as-fans-shun-ashes-20101114-17ssc.html

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Author

Carbonite Australia

November 21, 2010 at 7:19 am

It certainly helps our business being able to buy licences from the US cheaper. It should also make us more competitive withe US pricing. However can I say that these swings can be quite short lived and so some pricing here may not change for a while. We experienced it the other way around 12 or so months ago when the dollar fell to 55c US or something like that. We kept our pricing the same and lost margin, so in better times you try and make up for it before simply moving prices.

As a consumer its great and some of the stats I have seen really shows online traffic heading to international retail stores.

As an example, a drink bottle for my daughter that my wife was wanting to buy Sigg is the brand, in Australia costs $35 to buy from a store, to buy it direct from the US its $18 (ex delivery).

The reports I was reading were saying that many online stores from the US will be directly targeting Australians. So our retailers should beware. Its not just the consumer looking for these deals, they are also looking for us.

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Author

Paul Hassing

November 21, 2010 at 7:34 am

I’m impressed, Arthur, that you guys kept your prices steady in the face of such volatility. I think it was a smart move. I was cagey enough about this new tech without also having to cope with wild price fluctuations.

Which reminds me. I have to cough up some loot soon as my 30-day trial is about to expire.

It’s fascinating to hear that the US will be targeting us. Fifty years ago, that term would’ve had an entirely different meaning!

Thank you for yet another informative comment.

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Author

Paul Hassing

December 19, 2010 at 8:20 am

Another interesting article. Some of the knock-on effects are surprising:

http://www.theage.com.au/business/just-how-high-can-the-aussie-fly-20101218-191d1.html

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