Economy sweats over Aussie dollar

By Phil Mercer
BBC News, Darwin

The strong Aussie dollar has made life harder for foreign backpackers.

With sweat pouring down his flushed face, a young British tourist labours along Mitchell Street past the hostels and bars, struggling with the heavy humidity.

Welcome to another roasting day in Darwin, the cosmopolitan capital of Australia's Northern Territory.

Crimson-cheeked Andy, 21, from south-west England, is a victim of this year's dazzling rise of the Australian dollar.

He is desperately looking for work after seeing his savings rapidly depleted by the potency of the local currency, combined with the chronic weakness of sterling.

If the dollar remains very strong, it is going to be a challenge for exporters, not just for resources Chris Young, chief executive of the region's Chamber of Commerce in Darwin

"The pound has collapsed and makes everything a bit expensive. The beer's pricey too," Andy complains in a soft West Country burr.

"My money seems to be going down a lot recently, so I'm going to have to find work soon before I run out.

"A lot of people say it's easy to find a job in Darwin, but I'm having trouble at the moment."

Blow to exports

He is not the only one. A surging Aussie dollar is causing anxiety in the biggest sectors in the Northern Territory economy: tourism and mining.

"If the dollar remains very strong, it is going to be a challenge for exporters, not just for resources," says Chris Young, chief executive of the region's Chamber of Commerce in Darwin.

"We are also a major exporter of live cattle out of the Territory. Sooner or later, the [strong Australian dollar] could have an impact on that as well."

The holiday trade has already begun to notice a fall in international visitors.

"There is already some indication that forward bookings are dropping off," Mr Young adds.

Australia keeps building its reputation as a strong economy.

"How hard that is going to hit will depend on where the dollar is come March and April next year, when we start to head into our full [holiday] season."

The Australian dollar was hovering above 60 US cents in February, but is now flexing its muscles above 90 cents.

This vigorous comeback is closely linked to a floundering US economy.

Investors who sought sanctuary with the greenback during the global crash are now favouring riskier alternatives, including the Australian dollar, which has become more attractive because of relatively high interest rates.

Profits squeeze

The Northern Territory's fast-growing resources sector is dominated by oil and gas exploration.

But it also boasts one of Australia's major uranium mines, manganese deposits near Tennant Creek and gold reserves in the Tanami Desert.

Much of the region has already locked in long-term contracts with overseas buyers, which should insulate exporters from unpredictable shifts in the exchange rate.

Even so, however, analysts believe that profits in some areas will inevitably be squeezed.

International demand for commodities has transformed the skyline of tropical Darwin, where towering residential blocks cast glances towards the Timor Sea to the north.

The local Chamber of Commerce has estimated the city's population will increase by 50% by 2040.

Movie marred

While a rising dollar is unlikely to dent Darwin's long-term development, it has inflicted pain on a range of enterprises across the nation, including the film industry.

Natural beauty at home is not enough to prevent cashed-up Australians from heading overseas.

"One particular movie that was going to be made in Australia, called the Green Lantern, has been cancelled because the dollar has blown out costs for the film-makers," says Rod North, a Melbourne-based author and financial commentator.

He expects the local currency to see further gains in the months ahead.

"I think the [Australian] dollar is going to keep moving up, because we are very much geared into the US position," he adds, "and until we see interest rates start to move up in the US, we're not going to see our dollar come down.

"That is affecting major areas in Australia, which can create significant job losses, particularly in the tourism sector."

Such damage could be worsened by an exodus of cashed-up Australians heading overseas on holiday, preferring Bali or Kaikoura to the Great Barrier Reef or the Kakadu national park.

Australia's importers will also do well out of the high-performance local dollar, but everyone else is set for more suffering.