After months of banging on about how low the manufacturing industry is feeling over how high the Aussie dollar is getting, today’s news that it has suddenly fallen to a 10-month low against the US dollar is a beacon in the night for our manufacturing businesses.
The Australian dollar fell sharply this morning to US96.92 cents, and closed at US97.70 cents, which is down 2.5% from yesterday. This is a 12% drop since it reached its post-float high of $US1.1018 in July.
US feels the heat
Manufacturers could have the recently-rocky US economy to thank for this, with trading conditions for Australian companies likely to get a whole lot better.
Drops in US stocks were probably caused by the Federal Reserve’s expression of concern yesterday for the economy’s health, with chief executive Ben Bernanke raising concern by announcing a new strategy to drive the US’s low interest rates even lower.
Analysts are saying there wasn’t one major incident to blame for the greenback’s drop though, but rather a culmination of many traders feeling in a cautious ‘mood’ for a variety of different reasons.
"That was something that hung over the markets for more than a day. It might have been that the fundamental outlook is increasingly looking like it will get worse before it gets better, and that’s starting to dawn on investors,” said Westpac New Zealand senior market strategist Imre Speizer (quote from The Australian).
China falls from grace
China’s flagging fortunes might also be to thank for today’s lower Australian dollar, with falling manufacturing production in the region leading to the selling of the AUD, driving it down.
Manufacturing in China shrank for the third month in a row in September, with turbulence in the US and Europe hurting exports.
HSBC Holdings and Markit Economics figures show the region’s manufacturing growth fell 0.4 points to 49.4 during the month, which is below the 50-point level separating expansion from contraction. August and July also showed contraction, at 49.9 and 49.3 points respectively.
The Chinese manufacturing economy actually hasn’t grown for eight months now, with the rate of contraction merely slowing or rising throughout the period.
Rising electricity costs and worker wages have also been blamed for Chinese manufacturing’s fall from grace. India has been taking up some of the slack, with analysts claiming it is heading for a production boom.
Australia picks up the pieces
Regardless of the reasons, one thing’s for sure: this is a day for celebration for Aussie manufacturers, who this year have been hit by some of the hardest business conditions on record.
The carbon tax still might go ahead; the resources sector will keep growing; skills are getting harder to pin down; and cheap imports will always be a concern.
But today, the industry can cross one problem off the list. And that’s the good news.
Let’s just hope that beacon in the night isn’t in fact a mirage in the desert, because, as manufacturers know only too well, what goes down must come up (or vice versa).
But only time will tell.