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Monday, May 20, 2013

Travel industry braces as Aussie dollar plunges

by Peter Needham


The sharp fall in the value of the Australian dollar last week will affect tourism, but the extent will depend on trends over a longer period.

The currency dipped sharply and slumped below parity with the US dollar. It has now been below parity for a week. It slid to about 97 US cents on Friday, with global banking and securities firm Goldman Sachs predicting it could fall to as low as USD 0.80. That would represent a decline of almost 24% against its value just a week or two ago.

For tour operators and travel agents selling overseas trips, the Aussie dollar’s fall is not good news.

It’s bad news for Australian-based airlines too, as the cost of fuel, their greatest expense, will rise if the Australian dollar’s slump lasts, though hedging can soften the blow for a time.

The Australian dollar has fallen not just against the US unit but also against a raft of other currencies. Here’s how much the Australian dollar buys now when you change it into some popular currencies at mid-market rates. (For comparison, its value on 1 May 2013 is listed in brackets):

USD 0.97 (USD 1.02); GBP 0.64 (GBP 0.66); EUR 75 (EUR 77); NZD 1.20 (NZD1.21); SGD 1.22 (SGD 1.26); THB 29.04 (THB 30.1); IDR 9492 (IDR 9999).

For inbound tourism into Australia, a weaker Australian dollar is good news. Local tourism has held up pretty well in the face of a strong Aussie dollar and any fall in the currency’s value will help.

Just days before the dollar suddenly fell, US financier and hedge fund manager Stanley Druckenmiller forecast it would happen.

“We think the Australian dollar will come down and will come down hard,” Druckenmiller told the Sohn Investment Conference in New York. “It’s expensive.”

The dollar subsequently opened under 99 US cents for the first time in over a year, and then fell further. Economists expect its value will continue to drop as the American economy improves and China’s demand for commodities weakens.

If they are right and the Australian dollar falls in a sustained manner and stays down, it could risk dampening or even killing the boom in Australian outbound travel to the US, Britain and Europe. That would affect Qantas and other international airlines serving the Australian market – as well as hitting a lot of travel-related companies.
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