Around 15 months ago we made the prediction via Twitter that the Australian Dollar would hit the US $1.10 by Christmas.

At the time the Aussie dollar was buying around 90 US cents and opinion was split over how high it would go. Sadly, it didn’t quite reach the $1.10 mark by Christmas last year, but we weren’t far off.

But the big question now, is what does this mean for local businesses?

As a general rule of thumb, a high Aussie dollar is great for importers of overseas products as the cost of those goods is comparatively cheaper. It also usually means consumers win out as well, as online shopping from International stores is much cheaper, even after the extra shipping costs.

Exporters, as well as those in tourism, generally lose out as a result of a high-value local currency. Exporters find their products are now much more expensive for overseas buyers to purchase and those in the tourism sector find that travellers will prefer to head to places where they get better value for money.

But despite all this, the high dollar presents a great opportunity for local businesses in a number of ways.

Setting up an International Presence

With the Aussie dollar high, the cost to set up International offices or a presence in other countries is historically low. Not only do you get more US dollars/pounds/Euro for your buck, but thanks to the GFC leasing costs in overseas markets are also down considerably.

Higher unemployment means that recruiting good staff is easier purely because there’s more to choose from and depending upon your industry, the Federal Government has grants available for those looking to sell overseas.

What’s even better is when the dollar heads back to its natural levels (around 75-80 US cents), those that have invested now will be well placed to multiply overseas profits when they bring them back to our shores.

Utilising Overseas Labour or Products

Whilst this might seem un-Australian to be promoting using overseas labour or products, the realities of business mean that in some cases, getting cost-effective products or services in Australia just isn’t possible.

We have one of the lowest unemployment rates in the world at the moment, meaning there’s less labour available, and our high dollar makes using overseas labour (particularly for administrative or back-of-house processing) highly attractive.

Likewise, now is the time to shop around for cheaper products or manufacturing if it’s practical to do so.

So whilst the high Aussie dollar has its benefits and shortcomings, the best businesses are looking for ways to use that to their advantage.

The post Dollar Hits New High: What it Means for Business appeared first on Reload Consulting.

In economies that use an inflation-targeting approach to monetary policy, central banks will adjust the official cash rate in order to help keep inflation within a “normal” range. The argument from the IMF is that in order to give more policy “room” during downturns, we need to set a higher inflation target.

In Australia, the Reserve Bank uses an inflationary range of 2-3% as its guide when making monetary policy decisions. The RBA will thus use interest rates in order to slow an overheating economy (by raising the cash rate) or to pick up a slowing economy (by cutting rates).

However, Australia has one of the more liberal approaches in the world already, with most other countries targeting an inflationary range of between 1-2%.

Given the fact that Australia rode out the global recession far better than most others, one might argue that the IMF is on to something. Interestingly, the IMF also claimed that cash handouts, like those given out by the Rudd Government, should also be one of the first actions made in a downturning economy.

So whilst right now it looks like Australia has handled the downturn far better than most, the question will be how do we handle the inevitable upswing?

Two to three years ago, the story was completely different. Australia’s economy was still humming along nicely, and inflation was well above the targeted range.

As a result, the RBA continued to lift interest rates in an attempt to control it. However, around this time, there were strong calls that Australia’s economic inflation was being driven up by international pressures, like the price of oil, not domestic ones.

This lead to calls for the RBA to ignore what was deemed “imported inflation,” as domestic monetary policy decisions were unlikely to affect global sentiment.

Despite this, interest rates continued to be lifted, and when the world went into meltdown the RBA had no choice but to start slashing at the official cash rate, a move that most likely did more harm than good.

Having said all this, it does appear that the RBA has learnt some lessons from recent times, as they seem less inclined to tamper with the currency’s value (as this puts upward pressure on inflation) and have also assessed how the big banks respond to cash rate increases.

Food for thought…

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