A High Dollar is All Pain, No Gain

Last Updated Oct 10, 2010 10:25 PM EDT

A strong dollar hurts exporters, but should be great for people buying imports. Guess what, it makes little difference.
We know who suffers when the Aussie dollar is strong --- anyone reliant on export markets. Exports were down almost 11 percent in 2009-10, the decline largely in agriculture and manufacturing. It would have fallen further if it wasn't for the mining sector. Tourism has held up fairly well through the financial crisis, holding at around 5.8 million visitors a year, but it's unlikely that any of these industries can grow with a rising dollar, particularly when so many target markets are in dire financial trouble.

On the upside, a strong dollar should mean lower import prices. We've seen perpetual sales in our retailers and we've all been out buying our flat screen televisions, supposedly at bargain basement prices. We think we're getting a bargain, but prices are still expensive by overseas standards.

A little over a year ago the Aussie dollar was worth 86 US cents. Now that it's close to 99 cents does everything imported seem 15 percent cheaper?

CommSec's iPod Index now has Australia as the fifth most expensive place in the world to buy an iPod. Out of 32 countries tracked it's gone from 18th to 28th place in the last month, despite a strengthening dollar. Really we should be heading up the rankings to be one of the cheapest places, but we all want one so much and we're prepared to pay for it.

My own investigation of a range of products has shown they are often half the price in the UK and the US, based on today's exchange rate.


Admittedly, transport to our far flung corner of the world will always add to the price of goods, but not to the extent of doubling the cost --- particularly when a lot of these products are manufactured in Asia.

It's more to do with our preparedness to pay these higher rates. Manufacturers are skimming the Aussie market, pricing higher here irrespective of the strong dollar because consumers have more money in their pockets. They're only succumbing to international price pressures where we can easily buy online --- books, CDs, software and the like.

Despite the domination of two giants, retailers are benefiting less. The Woolworths group's latest half year revenue (at $23 billion) is 13 percent up on two years ago, a fair bit higher than inflation, but EBIT has risen only a bit --- from 6.7 percent to 7.3 percent. They're not getting squeezed on margins but there's also no sign of naked profiteering.

So, it really does seem international manufacturers are to blame. Why would a top-of-the-range Prius cost $58,500 here, but just $24,000 in the UK? Because Toyota says so.

So does anyone win with a strong dollar? If pricing of imported goods really is controlled by international distributors, then the benefit is being felt by companies shipping goods here, with no positive outcome for the Aussie economy.

Bob Katter said on ABC Radio this morning "the dollar should come down to where it was when it was allowed to free fall in Keating's day which was 60 cents". Does anybody disagree with him?

The details:
LG32LD350 32inch HD LCDTV - Dick Smith $599, getprice US$359, Dixons UKL199
MSOffice Home & Student 2010 - Officeworks $149, US$145, Dixons UKL90
iPod Touch 8Gb 4th gen - Dick Smith $378, MacMall US$279, Dixons UKL189
Levi Mens 501 shrink to fit - Jeans Warehouse $130, levi.com US$37 and UKL65
Kellogg's Allbran 500 gsm - Woolowrths $6.44, Peapod US$4.49, Asda Online UKL1.83
Huggies DryNites - Woolworths $13.86 for 13, Peapod US$11.99 for 21, Asda UKL3 for 14
Toyota Prius iTRech - Toyota on road list price $58,509, US$28,709, UKL23,398
Big Mac - Economist Big Mac Index - $4.35, US$3.73, UKL2.29