Australian dollar could reach parity with US$, say experts

Australian dollar could reach parity with US$, say experts

Australia's wine industry has taken a fresh dip on the currency rollercoaster ride following predictions that the Australian dollar will hit parity with its US counterpart.

The Australian dollar (AUD) rose above US$0.99 for the first time in more than a quarter of a century late last week. It remained at close to the same level today (11 October).

The news will be met with groans from Australian winemakers, who, as of this year, count the US as their largest export market by value for bottled wine. 

Several analysts have said that they expect the AUD to reach parity with the US$ by the end of 2010 and remain at a similar rate for much of 2011. Australia's treasury minister, Wayne Swan, told ABC News at the weekend that there was "no doubt" that the AUD/US$ rate will damage Australian companies' profits.
Unfavourable currency rates between the AUD and US$, as well as UK sterling, have already caused problems for Australian wine firms. Foster's Group blamed currency for a 27% drop in earnings before interest, tax and special items at its wine arm, Treasury Wine Estates, in the fiscal year to the end of June. 

Higher exchange rate assumptions also played a major role in forcing Foster's to record a AUD1.27bn impairment charge on the value of its wine assets for the year. The charge caused the Wolf Blass and Beringer wine producer to sink to losses of AUD464.4m for the 12 months.

Foster's has budgeted for the AUD to be worth US$0.86 on average over the next five years.

Its rival, Australian Vintage, has named the strong AUD as one of three main challenges faced by the industry, alongside oversupply and growing competition in the UK and US.

In Australian Vintage's full-year results statement in August, CEO Neil McGuigan said the firm would withhold an annual dividend in order to conserve cash to cope with currency swings. "We expect that the Australian dollar will remain high against Australian Vintage's major trading partners," said McGuigan.