Australian Dollar Strengthens to Parity
With the AUD reaching parity with the United States Dollar this month, importers are confident that the AUD can track higher and reduce their import costs. Around 80 per cent of importers and businesses that both import and export expect to increase their AUD/USD exposure.
| Business | Forecast for AUD by March 2011 | Plan to hedge |
| Importers | 1.08 US dollars | 43% |
| Exporters | 1.07 US dollars | 55% |
| Import and Export | 1.09 US dollars | 58% |
| Commonwealth Bank | 1.02 US dollars | N/A |
CBA Expert Questions Business Confidence
Joseph Capurso, Currency Strategist at Commonwealth Bank, is cautious about importer and exporter confidence, especially given that only half of the businesses surveyed plan to hedge their exposure.
“The Barometer reveals that both exporters and importers are working on the assumption that the Aussie dollar is going to strengthen to very high levels against the US dollar. However, if our forecasts are correct, the US dollar is likely to peak at around 1.02 early in 2011 leaving importers with higher costs than initially factored and that may impact their profitability.”
Volatility Drives Hedging Awareness
According to Mr Capurso, since the quarterly Barometer began in April 2010, the volatility of the Aussie dollar has made more companies aware of the value of hedging. The October Barometer reveals that 52 per cent of businesses intend to hedge their currency exposure, an increase from 46 per cent in April.
Industry Differences in Hedging Strategies
The Barometer reveals a stark difference in hedging between different industries: “About 85 per cent of primary producers such as farmers and miners say they plan to use hedging. By contrast, about 38 per cent of businesses in communications, finance and property sectors intend to use currency hedging.
“The bottom line is that exporters have higher exposure to foreign currency and are hedging, whereas importers are less likely to hedge so leave themselves exposed to the risk of higher costs if the AUD is not as strong as assumed,” concluded Mr Capurso.
With the AUD reaching parity with the United States Dollar this month, importers are confident that the AUD can track higher and reduce their import costs. Around 80 per cent of importers and businesses that both import and export expect to increase their AUD/USD exposure.
| Business | Forecast for AUD by March 2011 | Plan to hedge |
| Importers | 1.08 US dollars | 43% |
| Exporters | 1.07 US dollars | 55% |
| Import and Export | 1.09 US dollars | 58% |
| Commonwealth Bank | 1.02 US dollars | N/A |
Joseph Capurso, Currency Strategist at Commonwealth Bank, is cautious about importer and exporter confidence, especially given that only half of the businesses surveyed plan to hedge their exposure.
“The Barometer reveals that both exporters and importers are working on the assumption that the Aussie dollar is going to strengthen to very high levels against the US dollar. However, if our forecasts are correct, the US dollar is likely to peak at around 1.02 early in 2011 leaving importers with higher costs than initially factored and that may impact their profitability.”
According to Mr Capurso, since the quarterly Barometer began in April 2010, the volatility of the Aussie dollar has made more companies aware of the value of hedging. The October Barometer reveals that 52 per cent of businesses intend to hedge their currency exposure, an increase from 46 per cent in April.
The Barometer reveals a stark difference in hedging between different industries: “About 85 per cent of primary producers such as farmers and miners say they plan to use hedging. By contrast, about 38 per cent of businesses in communications, finance and property sectors intend to use currency hedging.
“The bottom line is that exporters have higher exposure to foreign currency and are hedging, whereas importers are less likely to hedge so leave themselves exposed to the risk of higher costs if the AUD is not as strong as assumed,” concluded Mr Capurso.
