Money
Issue No. 38 - December/January 07/08
Exchange doesn\‘t rate export worry
by Tim Harcourt
The Australian dollar is now in the high 80 US cent territory, a level not seen since the 1980s when Bob Hawke was PM and Warwick Capper was flying high with the Sydney Swans. There is even some speculation the Aussie battler could reach parity with the greenback.
Naturally, many market economists have also speculated as to how the high exchange rate will affect exporters.
The general school of thought says an appreciating exchange rate - the dollar gets more expensive in terms of US dollars - makes Australian exports more expensive and imports cheaper. Exports that are particularly price-elastic - sensitive to price changes - may see demand fall sharply, whilst price-elastic imports will see a big pick up in demand.
Business Groups are also worried in areas like tourism and manufacturing that, unlike their resources counterparts, don’t have rising incomes.
But when you look at the rising dollar’s behaviour and effects more closely, there is more to this than first meets the eye.
Firstly, most of the economic evidence shows that since the Aussie dollar was floated two decades ago, exporters have got used to fluctuations in exchange rates as part of doing business offshore. After the Sydney Olympics in 2000 the Australian dollar was worth around 50 US cents. Since then we’ve seen a gradual appreciation. We were ‘living in the 70s’ for some time, then in the 80s and now the ‘nervous 90s’.
Since the Aus...
