As typical import cycles from Asia are two to three months (to allow for sea freight, not expensive air freight) importers hedge (use a lower exchange rate) to ensure that the goods when landed don’t cost them more than they expected if the exchange rate changes in the meantime.
Importers have had a pretty good run with the Australian dollar being strong and stable – most importers ‘hedge’ and for some time have using parity 1:1.
But the recent interest rate reductions and concern over the impossibility (that is the politest word I can think of) of achieving the federal budget outcomes and political instability will see importers revert to far bigger hedging to protect their forward orders. A significant importer who wished to remain off the record said that they would be using .85 as the new hedge rate.
To put that in perspective the result could be up to a 15% increases on IT in three months’ time. The importer said that he did not think it would get back to 2009 rates when it hovered at USD .60 but there was talk of USD .70 by Xmas if things did not look up.
I am not an economist but I understand the impact of the exchange rate and its flow on effect on prices. The Australian economy may have escaped the GFC on a technicality but almost every business owner would say they have never been doing it tougher. The result of this is a certain caution and hedging is about that – not getting caught with higher cost inventory.
The only bright side is now that the AUD can be directly converted to the Chinese Yuan (without the intermediate USD conversion) we may be spared some pain but only if the Yuan moves in the same direction as the AUD.
Most financial analysts are predicting a slow and steady deterioration against the USD as its economy strengthens and claws its way back up the fiscal cliff. But others are saying the AUD will be ‘belted black and blue” in the coming months.
In all if you are considering making IT purchases goods in stock in Australian warehouses now should be better value than waiting a few more months.