Strong Aussie dollar hits manufacturers


Australians travelling overseas are benefiting from our stronger currency but the rise in the local dollar is squeezing the nation's tourism and manufacturing industries.

And an economist says relief is unlikely to come any time soon, given the spectre of the Reserve Bank of Australia (RBA) lifting interest rates further as the economy continues to improve.

"The impact of the higher Australian dollar on the tourism sector and also on exports is you are effectively cramping and downsizing two major areas of the Australian economy," CommSec economist Savanth Sebastian says.

The Australian dollar has recently traded between 91 US cents and 93.30 US cents, an appreciation of around 35 per cent from a year ago.

Mr Sebastian said Australian manufacturers that export were feeling the pinch from the stronger currency.

"There will be a lot more manufacturing that will move offshore because they cannot compete with the higher Australian dollar," he said.

Mr Sebastian expected the RBA to lift the cash rate by a quarter of a percentage point, to 4.0 per cent, at its next board meeting on February 2, following stronger-than-expected economic data recently.

"You could expect another one in March," Mr Sebastian added.

"There is no doubt that the rate hike will add further flavour to the Australian dollar and continue its upward leg."

Australia's unemployment rate fell to a eight-month low of 5.5 per cent in December, while retail sales rose 1.4 per cent in November, ABS data showed.

The RBA lifted the overnight cash rate by 25 basis points to 3.75 per cent in December, following similar moves in October and November.

Australia's key benchmark rate compares favourably to the US federal funds rate of zero to 0.25 per cent.

Official interest rates are at one per cent in Europe and 0.5 per cent in the UK.


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