CE & IT Industry Now In The Hands Of The Dollar
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Consumer electronics, IT and Hi Fi vendors are set to get hit hard by the falling Australian dollar. Yesterday Sony announced price increases by up to 30% with both Samsung, LG and Panasonic saying that they will have no price increases untill the new year when it expected that they will lift prices by up to 15%.

Speaking at the 2008 SmartHouse “Best Of The Best Awards” Carl Rose the Managing Director of Sony Australia told a large audience of industry executives that that one key issue will dominate the consumer electronics industry in the first quarter of 2009 price rises and the “dollar, dollar and the dollar”.

Overnight the dollar has dropped  following the release of a US manufacturing activity report which is the worst in 26 years added to evidence the US was already in recession. A smaller than expected interest rate cut from the Reserve Bank of Australia (RBA) today is tipped to give the domestic currency a short-lived boost, but weaker than forecast domestic retail sales data could spark fears about the local economy.

Already CE and IT distributors are feeling the effect of the falling dollar with some analysts now predicting a $0.60 dollar by Xmas which could result in further price hikes especially from Japanese manufacturers like Sony, Sharp, Pioneer, Mitsubishi and Fujitsu who are also having to battle the value of the Yen to the US dollar.

At 7am AEDT, the dollar was trading at $US0.6453/57, down marginally from Monday’s close of $US0.6465/70.  During the offshore session, the local unit traded between a midnight low of $US0.6384 and a late high of $US0.6482.

Risk appetite for high-yielding currencies came under pressure after the Institute for Supply Management’s US manufacturing report for last month posted its weakest reading since May 1982.   Manufacturing sector activity fell to 36.2 points in November, down from 38.9 in October, with a reading below 50 indicating a contraction.

 

The dollar and the euro both weakened as equity markets struggled, with Wall Street’s S&P500 index losing more than five per cent during New York trade.  Bank of America senior currency strategist John Rothfield said the dollar and the euro recovered from their session lows later in offshore trade as US Federal Reserve chairman Ben Bernanke said the central bank would buy more longer-dated US Treasury notes.

“That’s weighing a little bit on the US dollar, just this idea the Fed is doing what it can through quantitative easing to support the US economy,” Mr Rothfield said from San Francisco.  The supply of US dollars would increase if the US Fed bought more US Treasury bonds.

With debt futures already pricing in a 100 basis point rate cut from the RBA, Mr Rothfield said the dollar would enjoy a temporary rally if interest rates were eased by a lesser 50 or 75 basis points.

“That would be a temporary phenomenon until markets assessed if the Reserve Bank is behind the curve,” he said.  “Although the Australian dollar is undervalued, I’m not confident that if you get a spike you’ll get follow through.”

A one percentage point move would take the cash rate to 4.25 per cent for the first time since May 2002.

The RBA annoucement is due at 2.30pm AEDT.

Australian retail sales data for October is due at 11.30am AEDT, with economists expecting a 0.4 per cent decline, seasonally adjusted.

Mr Rothfield said a bigger than expected contraction in retail trade would spark a sell-off in the dollar, as traders worried about the possibility of the domestic economy sinking into a recession, despite assurances to the contrary from the RBA and the Treasury.

“The onus is on the data to show the official sector is right in predicting no recession,” he said.