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Light At The End Of The Tunnel For Distributors As Dollar Heads To $0.70

For distributors there is light appearing at the end of the tunnel, especially those that have already put their prices up when the dollar fell to $0.55 late last month.

Morgan Stanley’s Australian strategists say that the Australian dollar might have found a cyclical low and set out a path for the currency to rise above US70¢.

The news comes as distributors in the CE and appliance channel struggle to hedge their pricing.

The Australian dollar is trading at just over US61¢, off a low of US55¢ when the market panicked, and stocks were falling.

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Today the ASX is up 3% and the dollar is climbing with analysts tipping that US55¢ was the bottom for the currency.

Several distributors have already sold into retailers higher priced products due in part to retailers being desperate to secure stock as some retailers offered incentives to secure stock.

Currency analysts believe that current conditions could push the currency higher and that there will be fiscal easing of currency volatility.

Bloomberg said that ‘The risk-sensitive Aussie has underperformed all but one of its Group-of-10 peers in the past three months as the coronavirus outbreak spurs a flight to safety. The currency’s ability to rise will serve as a verdict on the Reserve Bank of Australia’s foray into quantitative easing, which has seen policy makers purchase bonds and slash rates to prop up the economy.

“We could get back toward the high 60 to 70 U.S. cents area — the question is when,” said Rob Holder, asset allocation specialist for Crestone Wealth Management Ltd. in Melbourne. “It wouldn’t surprise me to see a reasonably sharp rebound once the pandemic dies down.”

If there is a lessening of the US dollar liquidity crunch, the currency could reach US65¢. If there’s then a confirmation of a global recovery, it could hit US70¢ and an end to domestic deleveraging would likely see the currency above US70¢, the strategists said.

They noted that the 13 per cent slide in the currency since the start of the year will support the Australian economy “but to a much lesser extent than previously.”

“Around half of the GDP boost from a lower Australian dollar is via services trade – which is unlikely to function normally over the next year,” the analysts told the AFR.

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