THE RECENT run-up of the Australian dollar against other key grain exporting currencies will have an impact on our export competitiveness but a leading grains industry analyst said volatility in grain pricing was a bigger factor for traders at present.
The Australian dollar is threatening to break through the US80 cent mark for the first time since May 2015, buoyed by a combination of positive domestic economic news and various global factors.
Malcolm Bartholomaeus, Bartholomaeus Consulting, said currency movements were being monitored by the trade, but concerns about Australian production leading to a strong basis were more of a hurdle for exporters at present.
“The weather and basis story, with a strong positive basis due to concerns about our crop, is what people are focusing on more so than currency especially as it has only been in the last week the Aussie dollar has moved up compared to currencies other than the US dollar.”
“The movements against the US are a little more pronounced as you’ve seen the greenback drop as the Aussie has risen.”
Mr Bartholomaeus said the declining US dollar was not all bad news for the Australian grains industry.
“As a rule commodity prices get a boost from a declining US dollar and that is certainly having an impact on futures prices at present.”
Mr Bartholomaeus said the strength of the rally in the Aussie dollar had been slightly surprising.
“The trend was probably there for the dollar to rise but I think it is probably not quite where people expected it to be at this stage of the year.”
In terms of major areas to watch, Mr Bartholomaeus said the exchange rate against the Russian rouble would be critical.
“If the dollar rises against the rouble it will influence our competitiveness against Russia to export grain into Asia.”
Chief currency strategist and head of international economics at the Commonwealth Bank Richard Grace said there were five key factors that had led to the Aussie dollar’s rapid rise, which has seen it soar almost US6 cents, or 8.1pc in the past ten days.
“Firstly, the Australian economy is performing pretty well, the Reserve Bank has improved the outlook for wages growth, which has been one of the headwinds, while there were positive employment figures this week.”
“On the other hand the US dollar continues to depreciate due to policy inaction.”
“It has been drifting lower apart from a brief rally around the time Trump was elected.”
Mr Grace said the lift in international commodity prices were also supportive of an appreciating Aussie dollar.
“The commodity price index is up 12pc since the middle of June, there is good demand for iron ore in China and oil prices are also on the rise.”
“The index is now closing in on the levels it hit in the last quarter of 2016.”
He said one factor in the dollar’s revival that had was often overlooked was the improved in the current account deficit.
“The current account deficit is down to just 0.7pc of gross domestic product and is likely to average 1-1.5pc over the next 12-18 months,” Mr Grace said.
“We feel this drop is structural rather than cyclical, as we see the pay-off of the last ten years of mining investment, we can now physically move more product easier.”
He said the story internationally in terms of the global economy had altered to allow the dollar to catch up against other currencies.
“The euro had moved ahead of the dollar through April, May and June, what we have seen over the past fortnight is the dollar pull back some of the changes of the last few months.”
Mr Grace said the European economy was in possibly in its best shape since the global financial crisis.
“It is doing very well, Eurozone unemployment rates are good and the European Central Bank is looking to remove its quantitative easing measures.”
Gazing into the crystal ball, Mr Grace said the CBA had the Australian dollar hitting US83c at some stage in 2018.
“We don’t see the Reserve Bank lifting rates here until next year, but there is a risk they could go earlier if their forecasts regarding wage growth are right and inflation does rise,” he said.