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What dollar parity actually means for businesses

Friday, 15 October 2010 | By Leah Humphreys

Businesses in the manufacturing, export and tourism sector are all set to be impacted by the Australian dollar's parity with the US dollar, according to a leading economist.

 

Overall, the strength of the dollar is a clear indication of the strong performance of the Australian economy, says Westpac's senior economist Matthew Hassan.

 

"The strength of the dollar is a reflection of Australia's prosperity, though it is hard to reduce that to a good/bad scenario," Hassan says.

 

"It does indicate that Australia's economy is stretched by growing pains. Some sectors are performing much better than others."

 

Westpac bank predicts the Australian dollar will reach US$1.05 in the near future.

 

For exporters and manufacturers, the strength of the dollar could have dire consequences. "Some companies will be especially affected by overseas competition as the strength of the dollar increases, and for the exporters it could be a major dampener," says Hassan.

 

Tourism also stands to be adversely effected, with Australia no longer being the budget holiday destination that it once was.

 

The mining industry should remain relatively untouched, says Hassan: "We certainly haven't seen any negative impact to the mining sector, there has been little change to already very strong prices." The services sector should also be out of harm's way as it has had little competition from external opposition.

 

Hassan says parity will further quell inflationary pressure at a domestic level, which alleviates strain on the Reserve Bank to further raise interest rates. However, Australia may see an increase in outsourcing as the strength of the dollar increases the appeal for companies to expand offshore.

 

Retailers stand to benefit from the strength of the dollar, as it means imported goods and international freight costs will lessen. This price drop will undoubtedly be a welcome reprieve for retailers in time for preparation for the Christmas rush.

 

Manufacturers and importers across all sectors will also revel in the benefits provided by parity. The strength of the dollar will mean greater savings for those who rely heavily on fuel, and machinery and import costs will be decreased overall.