The Australian dollar is likely to stay “relatively high for years to come,” Prime Minister Julia Gillard said, challenging the nation’s businesses to work harder to overcome the drawbacks of a stronger currency.
“Our success is driving the dollar,” she said in the text of a speech to the Australia-Israel Chamber of Commerce in Melbourne. “In turn, the dollar is driving change and in doing so it’s making our economy leaner and stronger, forcing us to move more of our effort -- more money, more equipment, more people -- into the parts of our economy where we can create the greatest value.”
Gillard’s embrace of a higher currency was a response to industries seeking relief from their exposure to global competition. In the speech, she recalled other transitional eras in the nation’s history and quoted a U.S. Civil War general to deliver her message: that companies resistant to change must learn to adapt, or die.
“Every year, 300,000 businesses close down -- and 300,000 new ones start up,” Gillard said. “While economic transformations are never easy, this time we have an advantage we have rarely had before.”
The Australian dollar reached $1.1081 on July 27, the highest level since it was floated in 1983, before easing in subsequent months as concern intensified about the fallout from Europe’s debt crisis. It traded at $1.0613 at 2:17 p.m. in Sydney today after reaching a three-month high of $1.0688 on Jan. 26.
The level of the currency “has broken some business models and forced economic restructuring,” Gillard said. “Economic strength driving a strong dollar -- and a strong dollar driving economic change.”
She cited the large reallocations of capital and labor after the 1982 and 1991 recessions when many workers were “forced to look for new ways to support their family -- at times of double-digit unemployment and real concentrated hardship in many regions and towns.”
In contrast, the nation’s current jobless rate, at 5.2 percent, is below the U.S.’s 8.5 percent and is half Europe’s 10.4 percent.
Gillard came under fire for her handling of the economy from Liberal-National opposition leader Tony Abbott this week. In 2011, her first full year as prime minister, the nation recorded its worst job growth in 19 years and house prices slumped by a record 4.8 percent.
The prime minister today reiterated her pledge to return the nation’s budget to surplus in fiscal 2012-13, even as the global economy slows and tax revenue falls, insisting Australia must remain ahead of the curve.
“The current international instability stems in large part from real concerns about sovereign risk -- and perceptions of risk in various national economies can change quickly, indeed they have on occasion in recent times,” she said.
Gillard also noted that a return to surplus would increase the scope for the central bank to ease monetary policy when conditions require. The prime minister met yesterday in Sydney with Reserve Bank of Australia Governor Glenn Stevens.
Twenty-seven of 30 economists surveyed by Bloomberg News predicted this week Stevens would reduce borrowing costs by a quarter percentage point for a third straight meeting. Investors are pricing in a 60 percent chance he will lower borrowing costs to 4 percent on Feb. 7.
“It’s a striking development in our economic history that in a period of global uncertainty, the Australian currency is holding its value,” Gillard said today. “This comes even as markets harbor expectations of future easing of our monetary policy settings, expectations which might normally be expected to see the currency trend lower.”
Exports account for a fifth of Australia’s economy and China is its biggest trading partner, buying up Australian iron ore and coal to fuel construction as hundreds of millions of people move from villages to cities.
The value of Australian goods and services exports totaled A$27.2 billion ($28.9 billion) in November, the third-highest level on record, according to government figures. A report on the nation’s trade balance for December is scheduled for release tomorrow.
The currency’s strength is hurting the nation’s car industry, with Toyota Motor Corp.’s Australian division, the country’s largest car exporter, announcing last month it would cut more than a 10th of the employees at its assembly plant following a 21 percent decline in annual production in 2011.
Almost 200 workers will lose their jobs after Reckitt Benckiser Group PLC (RB/), makers of Mortein and Dettol, announced plans to shut down its only Australian manufacturing facility in Sydney.
“Today’s job losses only adds urgency to the case for industry and government to work with us to develop strategies to supporting manufacturing,” Australian Manufacturing Workers Union State Secretary Tim Ayres said in a statement today.
Gillard said her government would have “determination and clarity” in addressing the nation’s challenges in 2012. She cited American Civil War General Ulysses S. Grant, who said he would “fight it out along this line if it takes all summer.”
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