Qantas Airways Ltd. may be among the few Australian companies to celebrate after the nation’s currency strengthened to parity with the U.S. dollar, making planes and fuel cheaper while exporters’ profits drop.
Greater buying power for fuel and new aircraft is buoying the Sydney-based carrier while the strength of the so-called “Aussie” dollar makes Foster’s Group Ltd.’s wine exports more expensive and cuts the repatriated value of overseas sales.
“It’s net positive for Qantas because we buy $3 billion worth of fuel in U.S. dollars,” Chief Executive Officer Alan Joyce said last week. “We have $17 billion worth of aircraft on order; when we convert them to Aussie dollars, that’s cheaper.”
Exporters including Foster’s, blood-products maker CSL Ltd. and surfwear maker Billabong International Ltd. are among companies that may be hurt after the Australian dollar reached the highest since the end of exchange controls in 1983. Nomura Holdings Inc. and Credit Suisse AG forecast the local currency will trade at or above parity with the greenback through 2011 after reaching $1.0004 on Oct. 15 and trading at 97.66 U.S. cents on Oct. 22.
“The Aussie dollar will dampen the Australian market,” said Nader Naeimi, a Sydney-based strategist at AMP Capital Investors Ltd., which manages about $85 billion. “Any company you want to invest in should have contingencies to deal with something like this.”
Melbourne-based CSL, the world’s second-biggest maker of blood-derived medical treatments, gets about 85 percent of sales from outside Australia and said this month profit may fall more than expected on the currency gain.
The Aussie posted nine straight weeks of gains against the U.S. dollar through Oct. 15, the longest streak since May 2009 amid speculation the Reserve Bank of Australia will raise interest rates in an economy that skirted the global recession on stimulus measures and Chinese demand for iron ore, coal and other natural resources.
“The value of the Australian dollar reflects the stark difference in the strength of our economy relative to other nations,” Treasurer Wayne Swan said in e-mailed comments on Oct. 14.
The Australian currency has become a favorite for traders because of the country’s relatively high interest rates. The central bank has raised its benchmark borrowing rate to 4.5 percent from 3 percent over the past 12 months, as the Fed and the European Central Bank kept theirs unchanged at
There is a 38 percent chance Reserve Bank of Australia Governor Glenn Stevens will raise the 4.50 percent target lending rate at the next policy meeting, according to an index compiled by Credit Suisse Group AG based on swaps.
At Melbourne-based Foster’s, the world’s second-largest winemaker, the currency is hastening moves to focus on pricier labels as the company seeks wider profit margins to insulate it against the Aussie’s gain.
“The currency adds a complexity to the market,” David Dearie, head of Foster’s Australian wine unit, said Oct. 12. “You’ve got bigger margins at higher price points, so there’s more flexibility.”
Gains in the Aussie reduced the company’s earnings before interest and tax by A$123 million ($120 million), or 10 percent, in the fiscal year ended June. Each 1-cent gain in the Australian currency against the U.S. dollar slices A$1.9 million from earnings before interest and tax.
Pikes Wines, a closely held producer in the Clare Valley of South Australia, about 1,350 kilometers (839 miles) west of Sydney, is accelerating expansion into new markets outside the U.S. to mitigate the impact.
The decision will make Canada its largest market this year, overtaking the traditional top two, the U.S. and the U.K.
“We are spreading our export risk a lot more,” said Peter Bentley, export manager at Pikes.
Westfield Group, the world’s largest mall owner by value, gets more than half its revenue outside Australia through shopping centers in the U.K., U.S. and New Zealand.
While Westfield, controlled by billionaire Frank Lowy, may see overseas earnings drop, some of that is offset by lower debt payments because the Sydney-based company also has borrowings in overseas currencies.
“While income from one market might change, this will be offset by a reduction in U.S. dollar interest, for example,” Julia Clarke, a spokeswoman for the Sydney-based company, said in an e-mail.
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