Distributor issues a weak dollar warning

Distributor issues a weak dollar warning

A leading local distributor has warned that a weakening Australian dollar could see prices start to rise.

Express Data managing director, Ross Cochrane, predicted prices would be negatively impacted if the current downward trend continues.

He said commodity prices had come off recently and also pointed to a falling differential rate between the US and Aussie dollars as a threat.

"High Australian interest rates compared to the US have made this market attractive but that gap is getting narrow," Cochrane said. "This makes it attractive to invest in the US again.

"I'm not an economist but it looks like the Aussie dollar will come under pressure during the next six months."

Westpac analyst, Robert Rennie, said predictions of a weakening Aussie dollar were largely based on expectations of resurgence by its US counterpart. But he pointed out that the Aussie dollar had been very stable for a few weeks when compared to Asian and European currencies.

"I wouldn't yet be convinced that we are about to see a significant strengthening in the US dollar because that economy still has a current account deficit and a budget deficit," Rennie said.

Analysts are also watching to see how quickly the US Federal Reserve Bank raises rates. While the marker was currently at 2.75 per cent, Rennie predicted it would reach 4 per cent by the end of the year.

"If for any reason the Fed was more aggressive in raising rates, that would see the Aussie dollar weaken," he said.

The other major factor in determining the value of the Aussie dollar in coming months would be how quickly the local economy slowed.

A rate rise last month had been a possible marker of things to come, according to Rennie, but was counterbalanced by a strong employment report last week.

"There are some signs to suggest that domestic consumption is down," he said.

"If oil prices remain high, consumers remain less upbeat and we see further rate hikes, then economic growth will slow in the second half of the year."

While the Aussie dollar topped out just shy of $US0.80 on March 9, Rennie predicted it could spend another quarter above $US0.75 before getting down to about $US0.70 by the end of the year.

Senior currency strategist at ANZ, Craig Ferguson, predicted the Aussie dollar would fall to $US0.66 by the end of 2005.

"The commodity price cycle looks increasingly toppy against the backdrop of rising US rates and a potentially stronger US dollar," he warned.

"Lower domestic growth and retail sales, together with a substantial current account deficit, will become a drag on the Aussie dollar into 2006, when employment growth stalls and the Reserve Bank of Australia eases rates."

While currency rates are forever on the move, a rapid movement can bring real headaches. It is particularly worrying for distributors because they buy in US dollars.

General manager of D-Link A/NZ, Domenic Torre, recalled the Asian oil crisis of several years ago, which saw the Aussie dollar in freefall from $US0.80 to $US0.50. While this had forced the networking vendor to raise its pricing, he claimed this was the only time it has happened in the seven years he has worked for the company.

Torre said D-Link uses a 2 per cent variation against the US dollar as a reference point to indicate that it needed to take action.

"It is swings and roundabouts at the end of the day," he said. "As long as there isn't a 2 per cent variation that sticks for a month we can cope. If we do see that differential, we have to make a serious decision on whether it impacts on our business.

"We have to decide whether to increase pricing or wear it ourselves depending on the levels of activity in the market."

Marketing manager of Acer Oceania, Raymond Vardenaga, said the exchange rate was just one factor in determining a selling price.

Other considerations included component prices and transportation costs - with the latter currently under pressure lately due to the high price of oil.

"You need to have very good techniques in place to deal with change management," he said. "Otherwise, even when prices get cheaper, you are in danger of missing opportunities or failing to deal with a spike in demand. It is part of IT life."

It was important to have access to timely financial information, he said, and to have contingency plans in place that dictated what course of action to take when there was significant movement up or down.

IT Wholesale general manager, Darryl Tucker, said a weakening

Aussie dollar would have a negative effect on the price of accessories it sold under the brand of its sister company, Cassa. But it would be less likely to impact on the buying price of major multinational brands such as IBM.

"It's all about trying to buy the dollar at the right time," Tucker said. "It's always a gamble when you are buying in US dollars but that's the same for everybody."

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