Sky-high dollar may cause SMEs to crash
Tuesday, March 29, 2011/
Australian exporters are being encouraged to look at ways to ride out the record Australian dollar, with experts saying many small businesses are not equipped to deal with the soaring currency.
Last night, the dollar reached 103.06 US cents, breaching the key 103 US cents trading level, before quickly retreating to 102.98 US cents.
It was the highest level for the Australian dollar against the US dollar since the local currency was floated in December 1983.
The rise in the Australian dollar is attributed to growing risk appetite around the world, Australia’s links to China, and expectations the Reserve Bank will lift interest rates in the second half of the year.
Economists predict the local currency could rise further to around $US1.05, with some economists suggesting it could even approach $US1.10 by year end.
Lynda Slavinskis, principal solicitor at Lynda Slavinskis Lawyers & Consultants, says the soaring local currency is still flying under the radar for many small businesses, which is a concern.
“In business, mums and dads, particularly those that are growing, all they care about are keeping the business in the black,” Slavinskis says.
“It’s more about getting paid by overseas customers rather than worrying about currency fluctuations.”
“I advise small businesses to undertake strategies such as working out what their payments are and getting payments upfront.”
Slavinskis says the good news is that SMEs that survived the global financial crisis, and recent volatility in the Australian dollar, are the ones with good relationships and systems in place.
Peter Mace, general manager of the Australian Institute of Exports, has a less optimistic view on the effect of the strong Australian dollar, noting concerns the United States and Europe will make significant inroads into Australia’s traditional markets in Asia due to weakness in the greenback and euro.
Mace says while many businesses are reluctant to increase prices for fear of losing market share, cost-cutting and reducing imported components where possible will provide some relief.
While reluctant to forecast where the local dollar is headed, Mace says it’s been a “really tough” time for exporters, particularly winegrowers.
He says the nation’s booming mining exports and current interest rate settings suggest the Australian dollar will remain high for some time.
Mace advises companies to talk with their banks or providers of foreign exchange services and adjust their pricing strategies where necessary.