Dollar's slide mostly good
For a moment there, it seemed the high Australian dollar might join the cockroaches as the only survivor of nuclear winter.
Despite interest rate cuts, falling commodity prices and weak terms of trade, the cockroach currency continued to enjoy the high life. Until now.
The slump in the Australian dollar might still be young - it's been below parity for just a week now - but companies across numerous sectors are already calculating what it could be worth to them.
Aside from farmers and the tourism industry, the sector most frequently named as a victim of a high currency is the manufacturing industry.
Domestic steel makers such as BlueScope and Arrium (previously known as OneSteel) have had to cut operations and lay off staff during the recent surge in the dollar, but now could enjoy some relief as it gets close to US97¢.
Arrium estimated recently that every one-cent movement in the Australian dollar is directly worth - on an annual basis - up to $12 million in earnings before interest and tax.
Given it has lost 6¢ over the past 18 days, Arrium could have an extra $70 million or so to play with if it stays at this level for the next 12 months. And that's just the direct impact; further gains would be made in terms of competing against imports.
A 2011 survey conducted by the Australian Industry Group suggested that less than 10 per cent of Australian manufacturers were competitive when the dollar was above parity. More than 25 per cent were viable when the dollar was between US90¢ and parity.
The group's chief economist, Julie Toth, said it would be nice if this week's movements were the start of a trend.
"Any drop in the Australian dollar is a good-news story for Australian manufacturing and services industries, most of whom are outside the mining sector and highly dependent on export as income source," she said.
While the mining boom is often named as one of the forces behind the dollar's strength, Australia's mining companies have also been hurt by it. Most local miners sell their products into global markets on US dollar terms, but have to pay many of their costs - energy and labour to name just a few - in Australian dollars.
UBS analyst Glyn Lawcock investigated the impact of a lower currency on the resources sector this week and found that companies such as Alumina Ltd could double their earnings per share under a 5¢ fall in the local currency
He found that even companies such as BHP Billiton and Rio Tinto could enjoy an improvement of close to 6 per cent in earnings with a 5¢ fall in the Aussie.
But while there's a sense of relief from an easing currency, it may not be entirely positive.
As Mr Lawcock noted, the factors driving the dollar down may be the same factors that create a modest operating environment for resources companies in the future.
"We also need to consider the reason for $A weakness;
that being the possible winding back of (qualitative easing) and weaker commodity prices.
Both may weigh on equity performance," he said.
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