The buck won’t stop here

Posted October 5, 2009

At the moment the AUD looks unstoppable, having got close to $AU0.88 cents against the USD with some forecasters expecting it to nudge $AU0.95 cents within two years. While this may mean champagne and cigars for some, for others it’s actually pretty bad news – particularly for Australian exporters and international service providers whose products and services become more expensive.

Think of it in terms of bananas.

This time last year US buyers could get around $AU01.30 worth of Australian bananas for $US1.00. Today they can get $AU1.14 worth of bananas for $US1.00. That’s 15 per cent less money for Australia. And this does not only apply to the humble banana. DC Comics’ major feature film, The Green Lantern, was supposed to start filming in Sydney but the strengthening AUD has increased its $US200 million budget by $US25 million, halting production in the process.

Then, as if drought was not enough of a blow, the poor old farmers have come in for another belting. The Australian Bureau of Agricultural and Resource Economics (ABARE) has just released its quarterly predictions and it expects the rising AUD to cut into farm export earnings savagely. And ABARE is more pessimistic than the aforementioned forecasters. In its latest quarterly commodities outlook, it is punting that the Aussie dollar will average around $US0.83 in 2009-10, compared to an average of $US0.75 in the last financial year. More broadly, the AUD’s strength has seen ABARE trim its predictions for Australia’s income from commodities – stuff like grain, steel, coal and of course bananas – by around one billion dollars this year.

While I wouldn’t necessarily be buying the champagne and cigars for a knees-up parity party just yet, the AUD will go close, with – as noted – some forecasters tipping it to reach $AU0.95c within two years. So next time you hear Kevin Rudd say that the buck stops here, just quote Darryl Kerrigan in The Castle and “tell ‘im he’s dreamin'”.

In other news…our friends across the ditch have emerged from their long white cloud of recession. The New Zealand economy expanded by a fractional 0.1 per cent in the June quarter, allowing New Zealanders to cautiously declare an end to their five-quarter-long recession. In fact the Aussie’s very recent rally owes much to the Kiwi dollar, which reached a 13-month high of $NZ0.7187 in reaction to this result and also to the news that New Zealand dairy exporter Fonterra, the world’s largest, raised its forecast payout for the coming season by 12 per cent, citing improved market conditions.