Paul O’Brien’s costs are rising and it’s not just supply chain issues, shipping delays and increasing inflation that we’re all becoming accustomed to that is the cause.
- The US dollar has been steadily rising, in line with US Federal Reserve rate hikes
- However, the higher US dollar means Australian businesses are taking on much higher import costs
- Yet the Australian dollar is stronger against many other currencies
The US dollar is soaring, which means most currencies, including ours, are falling against it.
Mr O’Brien’s now paying a lot more for a transaction that cost him $100,000 in April.
“In the last three months, we’ve seen changes of around about $12,000 to $13,000 difference between transactions,” Mr O’Brien told ABC’s The Business.
His company, AirPhysio, makes a device that helps people with conditions like asthma, bronchiectasis and cystic fibrosis, to clear mucus in their lungs and improve their breathing.
In the midst of a pandemic caused by the respiratory disease COVID-19, business has been booming.
“We had massive growth over the last two years, of around 2,300 per cent in 12 months, and about 5,000 per cent over the last two years,” he said.
The vast majority of the parts in the handheld device are made in Australia, except small, medical-grade ball bearings that Mr O’Brien imports from China.
That trade is done in US dollars, so it’s now costing him a lot more to buy them.
“The difference [in the USD/AUD exchange rate] went from around about 74, 75 cents in the dollar, down to a couple of days ago, we [saw] about 63, 64 cents.
“You’re talking about $20,000 to $23,000 difference in a payment that might happen each week or every month.”
“It’s been a case of all systems go for the US dollar,” said Westpac’s head of a foreign exchange strategy, Richard Franulovich.
“The US dollar has been strong across the board this year and the Aussie dollar has not been immune, it’s down about 11 per cent.”
The Freight and Trade Alliance warns the high US dollar could have ramifications for local consumers too.
“When the Aussie dollar falls against the US dollar, imports become significantly more expensive for importers and, by extension, businesses and consumers,” Sal Milici from the Alliance told The Business.
“Our members in the importing community have had a really rough three years — they’ve had COVID-related supply chain crises, that flows into sky high shipping rates, and also our biosecurity agency is quite chronically challenged.
“And now, while there’s a little bit of a respite on the freight front, that’s sort have been evaporated by this fall in the currency.”
Aussie dollar is higher against other currencies
Some of our other trading partners are having a much rougher time of it than Australia. They are seeing their currencies fall while ours is stronger against them.
“Other currencies have fared a lot worse [than Australia]. The Yen is down more than 20 per cent. The pound is down about 17 per cent,” Mr Franulovich said.
Commodity prices for our biggest exports — such as iron ore, coal and gas — are still elevated, and that’s what’s giving our currency strength in the global market.
The UK is on the buying end of those higher commodity prices, with Europe in the grips of an energy crisis.
Already struggling in poor economic conditions, the British pound went into freefall last week after the UK government announced tax cuts for higher earners that were to be funded by borrowings.
That extra stimulus in the economy would have counteracted the Bank of England’s measures to try to slow the rate of inflation.
“Markets there were questioning the fiscal credibility of the UK authorities and that sent the pound reeling and interest rates soaring there last week,” Mr Franulovich explained.
“Now the Bank of England has intervened and provided a bit of a backstop. [It has] agreed to buy UK gilts [bonds] in whatever amounts necessary to stabilise the UK bond market and the interest rate markets there.”
This week, Prime Minister Liz Truss has also backtracked on the tax cuts.
It wasn’t the best timing for Australian business Locako to launch into the UK.
The Sydney-based business makes high-protein snacks and drink powders.
“We’ve been waiting to launch into the UK for a really long time now,” founder and chief executive officer Ally Mellor said, after returning from the UK on Friday.