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Distributors buoyed by strong dollar

Distributors buoyed by strong dollar

The rise of the Australian dollar to a 10-year high of $US0.808 against the greenback has been welcomed by several local distributors, who claim it will drive prices down and boost end-user spending.

Express Data managing director, Ross Cochrane, said the advantage for local importers was that it would lower stock acquisition costs. On the downside, those with a lot of existing inventory could feel the pressure of competitors importing goods at a cheaper price.

"If you are holding stock, you've bought it at a worse price and your competitors could be buying and selling it at a cheaper price today," he said. "The risks of holding inventory are significant and smaller numbers of people are doing that. These days the channel holds work in progress - unless they are a retailer."

On the positive side, ICT product prices were certain to fall, Cochrane said.

"It's a big step up when you consider the dollar was down to lows of $US0.72 and $US0.73 four years ago: now it's more than 10 per cent higher. It might take time for resellers to react and for the old stock to be sold through. But IT prices should decline," he said.

Westpac chief currency strategist, Robert Rennie, said there were three solid reasons for the higher dollar: the strong local economy; the relative softness of the US market; and a strong local commodities index prompting international investment.

"This month, the Reserve Bank of Australia (RBA) stated that there could be a rate rise as early as April. The strength of the Australian economy and that rate rise risk has seen foreign investors buying our dollars because it offers higher yields," he said. "Also, the US market is softer and their dollar weaker. Whenever that happens, the Australian dollar goes up."

Rennie warned the local currency had a long history of falling sharply after tipping the $US0.80 mark. This had resulted in several months of market volatility.

"In February 2004 for example, we hit US$0.8005, then fell very sharply - over 8 points in the following month," he said. "The same thing happened in November 2004: the Australian dollar hit $US0.7907 but within 24 hours had dropped by over a point. Two months later it had fallen by five points."

Despite this, Rennie was confident the dollar could ride out the latest value surge successfully and predicted it could get up to $US0.82 in the next month. "This time it's different - the Australian economy remains strong and will stay that way," he said. "The US economy looks as if it will stay softer."

Overall market buoyancy has already helped corporate integrators and services providers such as Data#3, Oakton, Commander and UXC chalk up strong revenue gains in the past six months.

Cochrane said lowering prices and a strong Australian dollar would make IT procurement and innovation even more attractive to corporate consumers.

He said the end of financial year is also typically the biggest buying time in Australia.

"We hope that with prices being so competitive, it will encourage people to say 'let's focus on IT spending and go ahead with projects'," Cochrane said. "Corporate buyers work on budgets. A better dollar will see this go further now."

Cellnet managing director, Adam Davenport, said distributors and manufacturers would need to pass on the benefits quickly to stay competitive.

"In IT, [price fluctuations] are extraordinarily sensitive. The market will quickly adjust to any differentiators," he said.

Davenport said Cellnet's strategy of reducing the amount of inventory it held would also help it to take advantage of lower buy prices.

"If you're moving stock regularly over a month or less, than it shouldn't have a negative impact," he said.

For those sourcing product locally, the impact was minimal, Dicker Data sales manager, Chris Price, said.

"It has no effect on us - usually the vendors, such as HP, get a set exchange price that they use [locally]. So it won't have much impact," he said. "It's more the guys dealing in OEM components who will be affected."


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