Monday, May 30, 2011

[pima.nius] High Aussie dollar hurting Pacific islands consumers

11:53 AM |

High Aussie dollar hurting Pacific islands consumers

Updated May 30, 2011 17:08:53

The high Australian dollar is having a negative impact on the Pacific according to new research from the ANZ Bank ..and it is consumers that are feeling it most.

Since early 2009 the Aussie dollar has had a spectacular rise -from just over 60 US cents to a peak earlier this month of over $1.10 US.

Today it is back to $1.06 but the outlook remains strong.

ANZ's Chief Asia Pacific Economist says Pacific households are taking a hit.

Presenter: Jemima Garrett, Pacific Business and Economic reporter
Speaker: Paul Gruenwald, Chief Asia Pacific Economist with the ANZ Bank

GRUENWALD: We recently surveyed our staff in the Pacific to find out the impact of the high Australian dollar and what we found was that the importing firms were not hedged, but because of the market position, they were able to pass the larger import costs onto the household. So we found that the larger net impact of the high Aussie dollar on the Pacific was being born by the retail sector.

GARRETT: So just how much impact are ordinary people in the Pacific feeling from the high Australian dollar?

GRUENWALD: Well, that's hard to get an exact number on, but some countries such as Fiji and PNG import one quarter or up to one half of their total goods from Australia and a bit more from New Zealand, where we think the affect would be similar for the New Zealand dollar, so it's quite a substantial chunk of household spending.

GARRETT: So to what extent are local businesses taking the impact of the high Australian dollar and to what extent is it flowing right through to households?

GRUENWALD: Our view again is most of it's being passed through to the retail sector. The firms that are taking a hit are the ones that are importing the raw materials or getting them from a second round affect and they're less able to absorb the cost, but there doesn't seem to be the direct importers that are taking the hit.

GARRETT: You found, as you mentioned, that most Pacific businesses were not hedged against the rise in the Australian dollar. Was that a mistake on their part?

GRUENWALD: We don't think it's a mistake necessarily. We would may be think of it as an opportunity since the Australian dollar is projected to stay relatively high. The ANZ has the forecast for Aussie dollar remaining above parity with the US dollar until the middle of next year. And as we all know the Aussie dollar is a relatively volatile currency, compared with the other majors. So certainly there's a bit in this case to look at hedging some of those exposures.

GARRETT: The high Australian dollar means that Australians have more money in their pocket when they go overseas. Is that leading to an increase in Australian tourists travelling to the Pacific?

GRUENWALD: It doesn't. There's two possibilities there, one as you noted there's more purchasing power in Australia and the attractiveness of going abroad is enhanced because of the higher currency. But it looks like Australian tourists are actually substituting away from the Pacific and going in larger numbers to markets like the US and Europe, so the Pacific has actually not experienced a large increase in tourists. Some Australian and New Zealand, perhaps the tourists are taking a one off opportunity to go farther away from home.

GARRETT: On the upside, the high Australian dollar will be putting up the value of remittances from Pacific Islanders living overseas and aid from Australia. To what extent is that offsetting the negative effects that you're talking about?

GRUENWALD: It's an offset, but again, I think the import channel is the dominant one. We do have aid flows in the region as you mentioned denominated in Aussie dollar and to the extent the governments received these. It helps the balance sheets and then as those flow through to the ultimate beneficiaries, groups such as NGOs, that's a positive impact as well. But that group that's benefiting I think is different from the broader consumer segment that's been hit with higher import costs. So it's an offset, but it's a partial offset, both in terms of size and in terms of the groups that are benefiting.

GARRETT: Well, what can Pacific consumers and small businesses do to protect themselves against the high Australian dollar?

GRUENWALD: There's not a whole lot, as we discussed earlier, there's a possibility of hedging those flows so the impact would be neutralised. But the Pacific is a region with very small, very open economies and whether its currencies or global growth trends or whatever, the region is going to be buffeted by these various shocks and it's just a case of having good policy, good micro-management and being able to roll with the punches as it were, because these currency movements and the global movements that hit these small economies are going to be with us for sometime.

GARRETT: I guess buying local where you can would help?

GRUENWALD: Yes, it would be a partial offset, but again the local production capacity is quite limited.

GARRETT: To what extent will the high Australian dollar fuel inflation problems for governments in the Pacific?

GRUENWALD: Well, the high Australian dollar is raising import costs, so that's a first round affect. It's something they would have to be mindful of. If the Australian dollar stays high, then we won't have further inflation. It will just mean high prices. If the Australian dollar continues to strengthen, pushing import prices ever higher, then we might have a persistent inflation problem. But right now, I think we would classify it as more of a level problem, the level of the Australian dollar is quite high, so the level of import prices in the Pacific would be quite high. Whether that translates into ongrowing inflation which is an ongoing late increase in prices, that's probably less of a concern right now.


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pacific islands media association
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aotearoa, new zealand
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pacific islands media association
pima.nius@gmail.com
aotearoa, new zealand
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The pima.nius googlegroup is a facility for discussion and distributing information. Content sent by this googlegroup are forwarded from various networks and media publications.
 
DISCLAIMER: These emails are unedited and discussions made through this googlegroup are unmoderated. Announcements made through this googlegroup do not constitute endorsement for the organisations, individuals or opinions featured. Please check the integrity of organisations and individuals before exchanging personal information with them.
 
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