Survey: 75 US cents is the Aussie dollar sweet spot

An Ai Group National CEO survey has found that an exchange rate of 75 US cents to the Australian dollar is the sweet spot for business growth

It may not be an exchange rate welcomed by personal travellers, but an Ai Group National survey of 248 business CEOs across Australia has determined that an exchange rate of 75 US cents is the point at which Australian businesses benefit most, weighing up both the export positives and import negatives.

“The report tracks the positive impact of the lower dollar on Australian businesses and manufacturers in particular,” Australian Industry Group Chief Executive, Innes Willox, said.

“Importantly, the lower dollar is clearly helping Australian economic growth transition away from its reliance on mining-related resources investment and output growth, towards a pattern of growth that is spread more evenly across sectors and geographies.”

“The lower dollar is a major factor in opening opportunities for exporters, with 61% (of those surveyed) noting that expanding overseas markets was one of their growth strategies. For service businesses, 48% nominated expanding overseas markets as a growth strategy. These proportions are significantly higher than in recent years. The lower dollar has assisted businesses take advantage of opportunities created by Free Trade Agreements and the growing middle class markets in Asia – particularly in sectors like food and beverage manufacturing, agribusiness and tourism.”

The report does, however, acknowledge the pressure that a weaker Australian dollar puts on importers, finding that the lower dollar is causing increases in some key inputs for businesses, with many businesses finding it hard to pass on these cost increases in the face of intense competition and a generally weak consumer inflation environment. The widespread use of imported inputs means that this is tightening margins across many businesses.

This is potentially flowing through to business lending, with the latest Australian Bureau of Statistics lending data showing that new commercial finance commitments fell 8.7% in June compared with the previous month (in seasonally adjusted terms). New business lending in June was down 23.4% on the same time last year.

Business Confidence

NAB’s most recent Monthly Business Survey, released in August, found that despite the recent federal election, the BREXIT vote and various other global events, Australian businesses have positive levels of business confidence.

Even prior to the recent RBA cash rate decision, NAB notes that the resilience of business confidence appears to stem largely from the fact that firms are still experiencing very elevated levels of business conditions.