The exchange rate of the Australian dollar is in constant fluctuation. A high demand for Australian dollar usually leads to a high exchange rate which creates winners and losers in the economy.
Recently, Australian dollar soared above US80 cents, to a high of US80.66 cents. Historically, the Australian dollar appreciated an all-time high of US110 cents in July 2011 and a record low of US48 cents in April 2001.
This recent rise has created economic advantages to overseas travellers, online shoppers purchasing goods and services from international merchants, domestic shoppers of imported goods at Australian retail outlets, importers and investors in overseas assets including shares. The major disadvantaged economic sectors include export, tourism and education.
The Manufacturing industry is a significant loser in rising Australian dollar, prompting alarm bells that export-exposed businesses will start losing to foreign competitors. To this industry, the dollar value within the band of US60 cents to US70 cents will be great for business. An exchange rate of US80 cents and above is outside the comfort zone.
Australian manufacturing industry currently contributes around $100 billion annually to gross domestic product (GDP), employs around 900,000 Australians and contributes over 25 per cent of business expenditure on research and development (R&D). Hence, a sluggishness in the manufacturing sector will have a negative impact on economic growth of Australia.
The situation of soaring exchange rate is a two-edged sword for some exporters, one better and the other worse. The importation of raw materials are suddenly cheaper but if the dollar rises too high and for too long, overseas customers could start reconsidering their supply chain to cheaper international markets.
Export of goods and services by generally high end Australian manufacturers is a dominant part of enterprise. Some manufacturers do 100 per cent export, some export regularly and some do the occasional export.
When the Australian dollar was all time high in 2011, some manufacturing businesses had to pull out of the export markets altogether. The uncertainty arising from the rising dollar is now very much in the minds of the manufacturers today. If the dollar keeps on going in its current direction, there will be an adverse impact on exports and economic growth of Australia. .