# Rising Aussie Dollar and your job



## Soft Dough (10 November 2009)

I'd hate to be in any manufacturing industry, especially one which has overseas links.  Farming I think will be ok.

It is distressing to see that Simon Crean announced something to the media.  We all know that ALL good news comes from Kevin Rudd.

http://www.theage.com.au/business/brace-for-a-stronger-dollar-crean-warns-20091110-i6z1.html

I wonder how long the car industry can withstand long term high exchange rates.

Because of poor leadership over the last 2 prime ministers we are definately looking at becoming a country more dependant on mining.


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## Awesomandy (10 November 2009)

My company's revenue is 100% USD. While we get paid in AUD, I can't see us getting a bonus this year.


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## So_Cynical (10 November 2009)

I don't see the big deal...there's alot of stuff sold here that's made in Europe, the exchange rate over the years hasn't affected those imports so why would it overtly affect our exports.

Over the years the AUD has been high and low...people still travel, still buy French champagne and BMW's etc...so i figure they will still buy our wines and beers and cars etc.


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## Soft Dough (10 November 2009)

So_Cynical said:


> I don't see the big deal...there's alot of stuff sold here that's made in Europe, the exchange rate over the years hasn't affected those imports so why would it overtly affect our exports.
> 
> Over the years the AUD has been high and low...people still travel, still buy French champagne and BMW's etc...so i figure they will still buy our wines and beers and cars etc.




In the past, the exchange rate was not sustained near parity for long, but it seems that this time, it will remain so.

The main problem is that if a company is owned by america and has manufacturing here, they will shut down our plant and produce over there ( as wages costs will blow out ) and even australian companies can now get goods manufactured overseas cheaper. We have examples of this in tyre manufacturing and textiles which made the news.

It will also result in cheaper imported goods, whereas locally produced will remain the same ( or with little decrease ), reducing our ability to compete in the local market.

Does not look good imo.


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## So_Cynical (10 November 2009)

Soft Dough said:


> In the past, the exchange rate was not sustained near parity for long, but it seems that this time, it will remain so.
> 
> The main problem is that if a company is owned by america and has manufacturing here, they will shut down our plant and produce over there ( as wages costs will blow out ) and even Australian companies can now get goods manufactured overseas cheaper. We have examples of this in tyre manufacturing and textiles which made the news.
> 
> ...




Yep i know the argument...bottom line is the Chinese do it (everything) cheaper than everyone so following your classic argument all manufacturing will move there, as it slowly is and has over the years....manufacturing has been a dead duck in all developed country's for decades.

This loss of manufacturing capacity is inevitable so i reckon we shouldn't fight it, as its a losing battle, subsidy's and bailouts while politicly palatable simply delay the inevitable...better to support and create industry's where there can only be limited replication in China and other competitor country's.

Wine is a great example...we do wines well, reasonably low cost, its a reasonably low impact land use, creates lots of jobs where there badly needed, a growth industry and we already have a great global reputation.

The Chinese cant replicate that....Beijing Merlot will never be a goer.:nono:


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## GumbyLearner (10 November 2009)

So_Cynical said:


> Wine is a great example...we do wines well, reasonably low cost, its a reasonably low impact land use, creates lots of jobs where there badly needed, a growth industry and we already have a great global reputation.
> 
> The Chinese cant replicate that....Beijing Merlot will never be a goer.:nono:




No they have got that covered too! 

http://www.ctvbc.ctv.ca/servlet/an/...nery_091107/20091107/?hub=BritishColumbiaHome

Also look at the free trade agreements Chile have entered into with Asian governments. Plenty of grapes in Chile and much cheaper than Aussie producers.


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## Aargh! (10 November 2009)

Awesomandy said:


> My company's revenue is 100% USD. While we get paid in AUD, I can't see us getting a bonus this year.




I get paid in $US so it SUCKS!


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## So_Cynical (11 November 2009)

GumbyLearner said:


> No they have got that covered too!
> 
> http://www.ctvbc.ctv.ca/servlet/an/...nery_091107/20091107/?hub=BritishColumbiaHome
> 
> Also look at the free trade agreements Chile have entered into with Asian governments. Plenty of grapes in Chile and much cheaper than Aussie producers.




Yeh but its Chilean or Chinese...your missing the point, its like Chinese made BMW's will never out sell the German ones, well not to discerning buyers anyway...u cant make Grange in Santiago.


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## GumbyLearner (11 November 2009)

So_Cynical said:


> Yeh but its Chilean or Chinese...your missing the point, its like Chinese made BMW's will never out sell the German ones, well not to discerning buyers anyway...u cant make Grange in Santiago.




What about Chinese consumers who unwittingly buy copies? 

I don't mean to be rude, but you're missing the REALITY!

That's right copies. I mean the whole car!!!!


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## Aussiejeff (11 November 2009)

So_Cynical said:


> ..**snip**.. Wine is a great example...we do wines well, reasonably low cost, its a reasonably low impact land use, *creates lots of jobs* where there badly needed, *a growth industry* and we already *have a great global reputation*. **snip**




Ummm. You might just want to rethink those *statements of fact* after reading this? http://www.news.com.au/adelaidenow/story/0,22606,26332756-2682,00.html?from=public_rss

In REALITY, the OZ wine industry is facing -

(a) a significant decline in profitability.
(b) loss of jobs through numerous closures / mergers.
(c) significant reduction in global reputation with soaring OZ dollar making OZ wines too expensive in US.

IMO the OZ wine industry is in for "a world of pain" over the next 24 months or so at least, with an uncertain future after that for many of the growers who have survived to that point.

Have another one on me.....


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## boofhead (11 November 2009)

The exchange rate has also impacted on UK wine sales. Landline has had a few stories on the matter. UK supermarket chains have specific pricepoints they want to operate at. The Landline site should have archives of the stories.

Beef grows that use exports have had a reduction in sales volumes too.

Paper makers in Australia for a while have been producing more than they can sell - people will buy the cheap Indonesian and Thai paper.

Holden would look a lot weaker if the USA police car deal never happened.

The BMW example is interesting. People with a bit more money will buy the brand names with good reputations and generally a quality product. Many of the consumers will buy the lower end though.

A recent job I had relied on foreign trade - in $US. It did impact on the business although it had other issues too. It closed down.

At the other end I'm sure the imports must be liking the exchange rates. Potentially better margins.


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## lasty (11 November 2009)

Exchange rates make an excuse everytime for poor industry practices.
Did you realise that the Australian dollar was near $1.40 back in 1970's?

Why is it that exactly the same goods can be bought cheaper overseas than here? Its the greed factor.

Australia's produce is first class. Its a pity that most of the best stuff gets shipped overseas and we are left with the dregs.
Once again why feed your fellow man quality when you can get a better dollar for it elsewhere.
Well that may change and I hope the exchange rate goes back to $1.40 because better produce will be staying at home, thats unless they take their bat and ball and go.


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## Mofra (11 November 2009)

GumbyLearner said:


> Also look at the free trade agreements Chile have entered into with Asian governments. Plenty of grapes in Chile and much cheaper than Aussie producers.



Chilean wines are execllent - came back from Sth America under 3 weeks, ago, and you can buy very decent wines from the supermarket for AUD$3 which would rival the $20 quaffers here. They tend to favour Cab Savs & Carmeniere, which was a grape vareity thought to be lost to the world 100 years ago but grows well in Chile. 

On a bus trip from Santiago to Valpariso, I passed plenty of wineries with cellar door facilities that rival most of what we have in Australia. Not sure about how much they are looking to export but teh mass-produced wines in Australia could feasibly be rivalled in export terms by Chile in years to come, although I dare say our premium wines will still be streets ahead of them.

For the record I tried Argentinian and Bolivian wines as well and they were quite drinkable.


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## gfresh (11 November 2009)

The RBA should be more moderate on it's rate rises until the rest of the world has recovered, to prevent further speculation on a higher $AUD..  A high dollar may well have the same effect of slowing the economy by hurting our exporters, and employment as rate rises. The effect may just be slower to be obvious. So effectively they may be double pumping, which could have unexpected consequences in a few months time. 

At the moment I have already imported several products direct from o/s due to the dollar, and that is less business going to local retailers. On other forums talk of awash of people importing this and that (and it is very easy through the Internet). If that is a small microcosm, surely this is not good if consumer dollars are flowing directly overseas, rather than locally? 

I guess tourism is down the drain now at the moment, but anybody from an outside perspective must be really starting to see Australia as a extremely "expensive" country and not worth visiting or living.

p.s. what would happen to the wine industry without expensive Government support? :bandit: It's yet another poor industry effectively propped up to protect polly's mates and their tax breaks.


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## Nyden (11 November 2009)

gfresh said:


> The RBA should be more moderate on it's rate rises until the rest of the world has recovered, to prevent further speculation on a higher $AUD..  A high dollar may well have the same effect of slowing the economy by hurting our exporters, and employment as rate rises. The effect may just be slower to be obvious. So effectively they may be double pumping, which could have unexpected consequences in a few months time.
> 
> At the moment I have already imported several products direct from o/s due to the dollar, and that is less business going to local retailers. On other forums talk of awash of people importing this and that (and it is very easy through the Internet). If that is a small microcosm, surely this is not good if consumer dollars are flowing directly overseas, rather than locally?
> 
> ...




The RBA cannot afford to not raise rates. Completely irrelevant of the effect it has on exporters - it's all about inflation, or in short - house prices. If rates are not lifted quite quickly, and drastically - median prices will very quickly get out of control.


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## gfresh (11 November 2009)

bah.. RBA trying to fight stupid Government which is a never-ending battle. Fix the f'ing tax system for property!


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## Bushman (11 November 2009)

The USD carry trade will unwind with gusto in the not too distant future and this will pop the *Aussie 'commodity' dollar *bubble.


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## Smurf1976 (11 November 2009)

Nyden said:


> The RBA cannot afford to not raise rates. Completely irrelevant of the effect it has on exporters - it's all about inflation, or in short - house prices. If rates are not lifted quite quickly, and drastically - median prices will very quickly get out of control.



You mean to say that median house prices around 7 times average earnings, roughly double their historic price relative to incomes, aren't already way out of control?

Mandatory 20% deposits on all home loans would promptly restore sense to the real estate market without the need to hike interest rates. It would fix the whole shonky mortgages issue that nearly brought down the financial system too.


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## Nyden (11 November 2009)

Smurf1976 said:


> You mean to say that median house prices around 7 times average earnings, roughly double their historic price relative to incomes, aren't already way out of control?
> 
> Mandatory 20% deposits on all home loans would promptly restore sense to the real estate market without the need to hike interest rates. It would fix the whole shonky mortgages issue that nearly brought down the financial system too.




Yes, but how would this be regulated? Would this be a government initiative? Ha. As though any federal government would do that ... you'd have stories all over that rubbish show A Current Affair, about how the government is keeping them from buying a home.

As far as I know, the RBA does not have the power to implement this requirement. The only power they really have, is to tighten monetary policy.

To your other point, of course they're already out of control, but does this mean we keep letting it happen? With minimal supply, the only real way to *reduce* prices (not merely stagnate them) is to hurt first-time home buyers. Bankrupt them, in waves - and we'll finally have some reprieve. Of course, we would simply release more land, build more homes, but again - the corrupt government isn't going to do that. Therefore, again - it's up to the RBA.

Basically, to lower prices - one way or another, *will* hurt people. There's no way it cannot. So, we simply need to accept that - and get on with the hurt.


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## Smurf1976 (11 November 2009)

Bushman said:


> The USD carry trade will unwind with gusto in the not too distant future and this will pop the *Aussie 'commodity' dollar *bubble.



Long term I do think the USD is worth nothing more than its value as fuel, insulation, toilet paper or bedding for small animals (or any other use you can find for lots of small pieces of paper).

But in the short term, there are just a few too many bears predicting imminent collapse for it to be likely right now. A decent rally in the USD will happen at some point in my opinion - but that doesn't change the reality of it being doomed in the long term.


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## Mofra (11 November 2009)

Smurf1976 said:


> Mandatory 20% deposits on all home loans would promptly restore sense to the real estate market without the need to hike interest rates. It would fix the whole shonky mortgages issue that nearly brought down the financial system too.



Australian deposit requirements had absolutely zero effect in bringing about the GFC - it was US lending practices combined with their poor securitisation models.


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## Smurf1976 (11 November 2009)

I'm still amazed that it took less than an hour, with no appointment, for me to walk into one of the Big 4 banks and walk out with a $185K mortgage. No proof of income, no proof of anything. I'm paying less than their standard variable rate and no mortgage insurance was required - and they quite happily went along with my suggestion that I didn't need to pay any set-up fees on the loan too. This was about 2 years ago.

Stop banks throwing money around like that and we won't have a problem with house prices. That said, if the RBA and other central banks keep printing then inflation will show up somewhere. If not house prices then it will be somewhere else - commodities, precious metals, stocks, bonds, food, utilities (that seems to be the big one at the moment) and so on.


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## Smurf1976 (11 November 2009)

Mofra said:


> Australian deposit requirements had absolutely zero effect in bringing about the GFC - it was US lending practices combined with their poor securitisation models.



Not requiring a deposit is symptomatic of poor lending practices in the same way as bald tyres and a rusted out exhaust are symptomatic of a lack of car maintenance. Whether or not it directly contributes to problems, it's a pretty sure sign of overall neglect.

Based on what I've seen, Australian banks aren't much better than those in the US. We've had all sorts of loans for people who historically wouldn't have qualified - I can only assume that the risk associated with those has been passed onto someone else as it was in the US.


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## Beej (11 November 2009)

Smurf1976 said:


> Not requiring a deposit is symptomatic of poor lending practices in the same way as bald tyres and a rusted out exhaust are symptomatic of a lack of car maintenance. Whether or not it directly contributes to problems, it's a pretty sure sign of overall neglect.
> 
> Based on what I've seen, Australian banks aren't much better than those in the US. We've had all sorts of loans for people who historically wouldn't have qualified - I can only assume that the risk associated with those has been passed onto someone else as it was in the US.




The minuscule mortgage default rate in Australia (especially when compared to the US or even the UK) would suggest your conclusions are not correct (see attached chart).

PS: Securitisation of mortgages was only ever a minor practice in AU. The big 4 banks hold the vast proportion of the mortgages issued on their books to this day (see www.apra.gov.au for actual stats). So there has been no great transference of the risk, small as that risk actually is as evidenced by the default rate data.

Cheers,

Beej


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## condog (12 November 2009)

Beej said:


> The minuscule mortgage default rate in Australia (especially when compared to the US or even the UK) would suggest your conclusions are not correct (see attached chart).
> 
> Beej




Our rates are miniscule compared to US and UK...but 

The banks are only yesterday saying for the first time they have suffered a very small decline in loan impairments.... and they cautiously think the worst may be over.....

This graph whilst accurate , is misleading as its time frame is prior to the last quarter where impairments peaked much higher then shown above....

If the govt increase Tier 1 capital requirements for the banks they will be requiring significantly more equity in loans ....... which is a great thing for stability, but a bad thing for growth....

I have heavy bank holdings and after closely monitoring thier performance and reports, I think they proved their strength  , but alarmingly , I feel they where far closer to being in trouble then we where led to believe by the banks or the govt.....

Impairments where significantly higher then any asx announcments had indicated.... and had capital raisings been less successful a couple of them would be in severe trouble right now....

So yes.... we need to do something to tidy up our banks loan books, as if we do have a double dip.... i will be liquidating my bank shares for sure....

From a shareholders point of view , while still sound fundamental businesses they are severely less profitable in the short term due to ROE declines from cap raisings and loan impairments.....When one considers they have massively increased market share and domination ...... they should be powering, but they are not......

Thats a warning shot accross the bow, that we have a few problems to fix before the next big correction....


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## Smurf1976 (12 November 2009)

Beej said:


> The minuscule mortgage default rate in Australia (especially when compared to the US or even the UK) would suggest your conclusions are not correct (see attached chart).



My point is about house prices, not defaults.

If banks weren't giving huge loans to anyone with a pulse then do you really think house prices would be as expensive as they are today? I very much doubt it since there would be basically no demand for houses at that price without the loose lending of recent years.


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## Soft Dough (12 November 2009)

Smurf1976 said:


> My point is about house prices, not defaults.
> 
> If banks weren't giving huge loans to anyone with a pulse then do you really think house prices would be as expensive as they are today? I very much doubt it since there would be basically no demand for houses at that price without the loose lending of recent years.




I think the problem is that people forget to realise that even though Australia has not had a recession in a long time, who knows when the next one will come.

Housing increasingly going past trend will only make the fall worse when it does come ( not if it does come ). I agree with other posters, I would not purchase property in Australia if I can get much better return in the UK or USA. Something has to give, either a fall, or stagnation for many years. 


But back on topic, 

How much longer to parity?  Ima gonna hazard a guess that it will be parity by 30 june 2010.


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## Ato (12 November 2009)

Bushman said:


> The USD carry trade will unwind with gusto in the not too distant future and this will pop the *Aussie 'commodity' dollar *bubble.




Sorry, I dont really understand what this means. If you have the time, would you mind explicitly spelling it out for this newb please :run:


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## GumbyLearner (12 November 2009)

Aussiejeff said:


> Ummm. You might just want to rethink those *statements of fact* after reading this? http://www.news.com.au/adelaidenow/story/0,22606,26332756-2682,00.html?from=public_rss
> 
> In REALITY, the OZ wine industry is facing -
> 
> ...




I agree AJ.

I think also So Cynical is assuming that most Asian consumers of wine or luxury cars are quite discerning about purchases. The fact is that most people just want to impress others. Whether it be a fake bottle of plonk or a fake automobile? The days of plonk and automobiles especially fakes being outside the purchasing power of most urban Asians are long gone I'm afraid.
Open markets create opportunity, but they tend to encourage imitators rather than innovators from what I have observed around different parts of Asia.

Just my


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## Dowdy (14 November 2009)

A rising aussie dollar is great for my home based business since i import from China and Taiwan and they only trade in USD


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## tehnoob (15 November 2009)

boofhead said:


> Holden would look a lot weaker if the USA police car deal never happened.




It hasn't actually happened. If it does go ahead it wouldn't be until 2011 anyway.


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