Bet your bottom dollar: What does the dropping Aussie dollar mean for your SME?
Wednesday, January 28, 2015/
The average price of petrol is at its lowest level in six years
The Australian dollar has again fallen below US80c this morning, after it rose slightly off the back of official inflation data yesterday.
The dollar was trading this morning at US79 cents, continuing the downward trend since June last year.
Data released yesterday by the Australian Bureau of Statistics showed inflation slowed to 1.7% annually in the December quarter, which was in line with market expectations.
Meanwhile, data from the Australian Institute of Petroleum shows the average price of petrol at the bowser fell by 4.7 cents per litre across Australia last week to 111.0 cents a litre, its lowest level in six years.
The steadily falling Aussie dollar and the continued slide in the price of petrol is anticipated to influence the Reserve Bank’s decision to leave interest rates on hold next week, as well as affect SMEs operating in all quarters of the economy.
The sharp drop in petrol is expected to have a positive effect on Australian retailers if consumers choose to spend their petrol savings within Australia, while the lower dollar will continue to impact small businesses that import and export their products, with importing costs expected to rise while exporters enjoy an increased competitive edge from the lower exchange rate.
But University of New South Wales economics professor Tim Harcourt told SmartCompany the effect of the dollar on small business will not be as far reaching as many expect.
“People tend to exaggerate the effect of the dollar rising and falling,” says Harcourt.
“When the dollar is high, it’s the end of the world for Australian competition; when it’s low, there is no confidence in the Australian economy.”
Harcourt says small businesses will feel the biggest brunt of the low dollar in their importing costs, as many businesses rely on importing items such as computers from the US.
“It’s swings and roundabouts though,” he says, pointing out local retailers will benefit from consumers turning away from buying cheaper overseas products online.
While Harcourt says small business will likely feel any pain more than big businesses, which largely have “ways of dealing” with dollar fluctuations, he says most SMEs realise a floating dollar is better than edging towards recession.
“The reality is small businesses know the dollar does go up and down and generally they know how to deal with it,” says Harcourt.