By Aimee Chanthadavong

Over the last few weeks the Australian dollar has been steadily increasing following the country’s recovery of the global financial crisis.

At 1700 AEST 29 September, the local dollar was trading at 96.75 cents, approaching the highest level since it reached 98.50 US cents in July 2008.

Jospeh Capurso, Commonwealth Bank currency strategist, told Retailbiz that there are a few underlying reasons for the strong Australian dollar.

“One of the reasons is that the US dollar is weak against a lot of other currencies globally such as the British Pounds, Swiss Francs and Japanese Yen,” he said.

“Another part is closer to home; it relates to the Australian economy where there is an increase in inflation pressure due to the increases of interest rates, which has been happening for about a year. This has made our interest rates very high to America, which is very low and is putting an upward pressure on the Australian dollar.

“Commodity prices are also high; most Australian exports are commodities and as global commodities go up, it tends to put upward pressure on dollar.”

Capurso has forecasted that next month’s potential interest rate rise by the Reserve Bank of Australia (RBA) will continue to put upward pressure on the Australian dollar, potentially breaking records.

And what does this mean for retailers?
Russell Zimmerman, Australian Retailers Association (ARA) executive director said importing products will become far cheaper.

“Electronic retailers have already told me that there has been a price deflation of 29 to 32 per cent, which is extremely significant. Also, no doubt clothing and footwear that is coming from overseas will see a price reduction,” he said.

At the same time, discounted prices may see retailers needing to sell at a greater volume of goods in order to receive the same margin return, according to Zimmerman.

“From the other side, as retailers will be handing the discounted prices to their customers, it’d mean they’ll have to sell a lot more for the product to retain the same dollar return,” he said.

“It comes down to market forces; if one retailer puts their prices down then it goes to affecting the rest of retail industry as everyone else would need to reduce their prices otherwise they’re going to be seen as expensive.”