Volatile Australian dollar triggers pricing review

The volatility of the Australian dollar against the US greenback is creating more costing headaches for distributors and will trigger product price rises across the board, several industry players claim.

After recording a 25-year high against the US dollar of $0.98 in mid-July, the Australian dollar has fluctuated wildly in the past six weeks and dropped nearly 20 per cent to a one-year low of $0.81 on September 5.

Westpac currency strategist, Jonathan Cavenagh, attributed Australia’s weakening dollar to a slowing economy brought about by growing global concerns. This had weighed heavily on local commodity prices.

“We’re seeing a big correlation there – the Australian dollar trades tightly with commodity prices,” he said. “The currency has therefore come under so much pressure, along with interest rates.”

Last week, the Reserve Bank of Australia announced the first interest rate cut in seven years of 0.25 per cent in a bid to bring consumer spending back to life and ease mortgage concerns. This was also influencing the value of the dollar, Cavenagh said.

“If you go back to mid-July, we hit highs of $0.98 against the US dollar. The view was that the US was in a lot of trouble, but the rest of the world was ok. The risk was that we would see higher interest rates at some stage.

“Fast forward to now and the US doesn’t look all that good but the rest of the world is playing catch up: We’re seeing negative growth in Japan, New Zealand and Europe and a rapid slowdown of Australian growth. We’ve had the first interest rate cut in seven years – that wasn’t on the radar a couple of months ago.”

While the latest Australian dollar fall will inevitably trigger pricing reviews, Express Data managing director, Ross Cochrane, said the biggest problem for distributors was the unpredictability and volatility of exchange rates. This made it difficult to set and maintain local pricing on hardware goods as well as non-physical products such as software licensing.

“Distributors don’t have 20 per cent margin to continue to price stuff at the same level,” he said. To try and avoid overexposure and the risk of being out of pocket many distributors, such as Express Data and Synnex, hedge currency at a certain rate against the US greenback and then buy cover at that rate.