Australia | Mar 14 2012
By Andrew Nelson
New data from the Commonwealth Bank show an ever increasing amount of Australian exporters are curbing their borrowing intentions because of the continued strength of the Australian dollar. According to the bank’s quarterly Aussie Dollar Barometer, borrowing appetite is decreasing amongst smaller exporters, but importers are queuing up.
The Aussie Dollar Barometer is a report put out every three months by the Commonwealth Bank and it aims to track the exposure of importers and exporters to the Australian dollar. The report further aims to gauge the expectations for trading levels and looks at hedging plans intended to manage foreign exchange risk.
According to the report, 41% of exporters said the strong Australian dollar had reduced their desire to borrow local currency. However, it seems this phenomenon has affected the borrowing plans of smaller businesses much more than it has large businesses. 1-in-4 smaller businesses, or of businesses with turnover of $5m-25m, said they were less likely to take on any extra debt. On the other hand, 14% of the larger businesses polled said the high Australian dollar was actually increasing their desire to borrow.
On the other hand, the report shows importers are continuing to benefit from the strong Aussie, with 55% reporting an increased appetite to borrow. Businesses in the financial sector are at the front of the line, with more than two-thirds having an increased debt appetite.
Commonwealth Bank Currency Strategist, Joseph Capurso, notes the most recent data are pretty much in line with the past few Barometer reports, which have been indicating a clear shift in how businesses are adapting to the prevailing FX market conditions.
“Over past quarters we have seen a marked change in the way export businesses are adapting their operating models, with capital spending plans and workforce size all coming under the spotlight.”
“For some time now, a very clear message from the Barometer is that more businesses are hedging to try and control the effect of the dollar on their business. Many businesses are realising that the dollar is likely to stay at these higher levels and that what we are experiencing is not just a flash in the pan,” he concludes.
Capurso is pretty confident about the read as well, noting that since last August 99.6% of businesses polled followed through with their hedging plans.
According to the report, 68% of businesses with annual turnovers in the $25m-$150m range are now planning to hedge. This is up from 40% in July 2010 and is consistent with the view the AUD will peak at US$1.12 by the end of September 2012.
Larger businesses with a turnover of $500m or more believe the dollar will ease in September and towards the end of the year at US$1.03. Thus, some 70% of businesses in this space are planning to hedge, which is down from 77% in the previous quarter according to Commonwealth Bank.
Capurso thinks many Australian businesses are still content to be reactive, rather than proactive when it comes to managing foreign exchange exposure. However, he points out this may be a mistake, as it leaves businesses exposed to the possibility of future adverse movements.
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