News Analysis: the ups and downs of the dollar

News Analysis: the ups and downs of the dollar

It's up, it's down, it's up again. The fluctuation of the Australian dollar is causing headaches for the channel, and vendors and distributors alike are pondering the best buying strategies in an uncertain market.

Since the beginning of the year, the value of the Australian dollar has clawed its way back from the rock-bottom lows of the last 18 months, and the channel is beginning to see the effects. This month, Microsoft will cut the price of its volume licensing software by 3 per cent. The move is part of an ongoing exchange rate review, which was established to manage the volatile value of the dollar. It is the first time Microsoft has dropped its prices since the system was established last August.

"It means the channel doesn't have to worry about hedging like they have to do with other vendors, particularly hardware vendors," said Microsoft lead product manager Ross Dembecki. "Prices are reviewed monthly in relation to the current exchange rate. We look at the moving average over a period of a couple of months and adjust it up or down to reflect that."

Resellers and distributors are then given 30 days notice of pricing changes.

The scheme is aimed at ironing out the peaks and troughs of the exchange rate, which for local companies can represent significant challenges.

"It does hurt the bottom line, particularly when you have retail clients locked in at a particular sales price," said Swann Communications group accountant and financial controller Corey Bakes. Swann is a mass import merchant that repackages products for sale in Australia and exports to Europe, the US and New Zealand. Bakes believes the rise of the dollar will continue as interest rates also rise. For that reason, the company is not hedging its bets.

"We are happy to take in the savings rather than lock in a particular price," he said. "We just try to get the best rate on the day."

Although a rising Australian dollar is the best news for exporters, Swann's growing US business is providing a "natural hedge" for the company, he said.

Niels Kofahl, director of distributor Tecksel, also doesn't believe in hedging in the current market, although he admits it can be a way around the dollar doldrums.

"I am against punting like that. There's no room for speculation in distribution because the business is so tight anyway. The danger is if it goes up any further, then you could have bought at a lower price," Kofahl said.

"If the rise or fall is small, then a distributor just absorbs the price difference. If it's larger, then you have to consider a change in pricing."

Each time the dollar looks like hitting the 58-cent US mark, its strength seems to waver. But Bakes thinks the upward trend will continue.

"I believe we are looking at another 25-50 basis points in the next six months," he said. "It's all expectation driven, of course, but I believe we will see upward pressure in the next six months and that tells me not to lock in the dollar."

The trick will be picking the height of the value. "If a distributor buys at the dollar's peak, then he can be more competitive," Kofahl said. "There's a bit of guesswork involved."

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