CEOs say 75 cents is the sweet spot for the Australian dollar

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There is much postulating about the Reserve Bank’s assumed disquiet or otherwise with the ebb and flow of the Australian dollar since it stopped falling.

But it seems that the current level of 0.7640 is only marginally above where Australia’s business leaders see the sweet spot for the AUDUSD exchange rate according to a recent CEO survey of 248 business leaders by the AiGroup.

The report found that “an exchange rate of 75 US cents to the Australian dollar is the sweet spot for business growth” the Ai Group said.

“Importantly, the lower dollar is clearly helping Australian economic growth transition away from its reliance on mining-related resources investment and output growth, towards a pattern of growth that is spread more evenly across sectors and geographies,” AiGroup chief executive Innes Willox said.

The sting in the tail of the Aussie dollar’s fall is that imported costs increase and “many businesses find it hard to pass on these cost increases in the face of intense competition and a generally weak inflation environment”, Willox noted.

That said, a lower dollar appears to offer net benefits to the economy including “greater trade opportunities” while also providing “overall positive impacts on Australian-based manufacturing and services businesses”.

43% of exporting manufacturers believe their export income will increase while 25% of services business who expect export income to rise.

“The lower dollar has assisted businesses take advantage of opportunities created by Free Trade Agreements and the growing middle class markets in Asia – particularly in sectors like food and beverage manufacturing, agribusiness and tourism,” Willox said.

But “opportunity itself is not enough to ensure the continuing success of Australian businesses”, he added.

Rather, Willox set out the road map for success in the low Aussie dollar environment:

Australian exporting businesses and those competing with imports need to be increasingly focussed on efficiency, reliability, innovation, collaboration and continuous improvement. They need to be looking at delivering a more diverse and higher value array of goods and services and becoming more tightly integrated into global supply chains and global marketing networks.

For many of these businesses, future success in the global economy requires end-to-end product development, close collaboration with customers, suppliers and competitors, making better use of our Free Trade Agreements and continually exploring new opportunities in existing markets and expanding into new markets.

But any Aussie dollar rise from current levels could cruel the opportunity, according to survey responses.

“Significantly fewer businesses believe they can be competitive in the 81 cent to 90 cents range in 2016, with 44% of exporting manufacturers and 35% of manufacturers competing with imports believing they can remain competitive, compared to 63% and 66% respectively in the 2015 survey” the survey showed.

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