It’s been a good ride for the Aussie dollar, but its rise has finally been checked by a slowing Chinese economy, the rise of the US currency and its housing market, cooling investor sentiment and low international interest rates. And if it continues to depreciate, the impact on Australian businesses will be a mix of good and bad. In the end, it’s all about purchasing-power parity. When our dollar’s high, we import and when it’s low, we export.
For the consumer this is often felt through rising fuel and imported goods prices, potentially stagnant wages (if not loss of jobs), and less spending power when overseas.
However, for industry, there’s often a mixed outcome.
The good: An invigorated manufacturing sector overall. This should lead to higher domestic prices, more profits and as a result increased local production and jobs. In general, locally manufactured goods will be more competitive abroad and at home as imports rise in price.
The bad: A drop in revenue for businesses importing products or inputs for their manufacturing or services.
The good: More in-store shopping. The retail sector may see local consumers purchase less from overseas websites owing to higher prices and increased cost of shipping and overseas customers may also buy more from Australian sites. This provides an interesting opportunity for retailers to revisit (or discover) their digital marketing and social media strategy to better attract these consumers.
The bad: Increased costs for retailers buying products from overseas, and no alternative to imported goods is available.
The good: More competitive pricing will make Australia more attractive for international buyers. This is especially true for the Australian wine industry. Their robust export model to Europe and the United Kingdom was negatively affected by both the high dollar and supermarkets dropping their prices on local produce.
The bad: Fewer imports (of intermediate, capital and consumption goods) may impact competitiveness and productivity; especially for any business without a solid value proposition that relies solely on lower prices for importing and distribution.
The good: The tourism industry may see more international visitors. To best approach and accommodate them, family businesses in tourism need to be clear about who their customers are and how to best reach them.
The bad: Rising fuel costs will impact the bottom line and increase the costs of transporting goods, people and travellers.
The good: Australian higher education institutions may see an increase in foreign student enrolments. This may have a roll-on effect for the construction and retail sectors.
The bad: Hard to tell as we are yet to see any impact on foreign student numbers due to the lag time between making the decision to study abroad, enrolling, and actually re-locating.
The good: A rise in foreign and alternative investment. It is now relatively cheaper for foreign investment in Australia while Australian investors move funds overseas. Further, with the mining sector experiencing lower growth, it may be a good time to invest in other opportunities such as the National Broadband Network.
The bad: Offshore money will be taken out of Australian stocks and reinvested in countries with more stable currencies.
It’s a balancing act – the one constant with exchange rates is that they will always change. That’s why you should work to ensure your business can effectively balance itself, regardless of how the currency moves.
To manage your risk exposure to exchange rates:
• Get as much clarity as possible about your markets and customers.
• Maintain a strong and distinctive value proposition.
• Constantly revisit your business model and long-term strategy.
• Cut out costs and processes that don’t add value. Be efficient and adapt.
• Constantly innovate and look for opportunities to diversify and change distribution channels.
A variable exchange rate means keeping your options open.
Dominic Pelligana is a KPMG Private Enterprise partner and leads KPMG’s Family Business Services.