RBA’s Tanna Says Aussie’s Drop to Boost Commodity Export Returns
A slump in the Australian dollar, which is trading near a three-year low, will help the nation’s economy by boosting commodity export revenue, Reserve Bank of Australia board member Catherine Tanna said.
“It’s positive for Australia because commodities are typically sold in U.S. dollars, and government receipts will rise with a falling dollar,” Tanna, also chairman of BG Group Plc (BG/)’s local unit, QGC Pty, said in a phone interview. The company is building a $20.4 billion liquefied natural gas project in Queensland, one of seven going ahead in Australia.
The Aussie is the worst performer among a group of 10 currencies in the past six months, falling 14 percent versus the greenback. The declines offset a drop in the nation’s terms of trade amid China’s weakening demand for commodities, which may curb Australian economic growth and the government’s revenue.
“The extent to which it’s beneficial is going to depend on the duration of the fall,” Tanna said yesterday. “LNG will be Australia’s main source of export growth in the medium term.”
Barclays Plc sees the Australian currency dropping to 86 cents by the middle of next year amid a weaker outlook for Australia and improving growth prospects for the U.S. That’s more bearish than the median estimate in a Bloomberg survey of economists for the currency to slide to 88 cents. It traded at 89.43 cents at 9:34 a.m. Sydney time.
The currency held above $1 from mid-June last year to May 9, the longest stretch above parity with the U.S. dollar since it was freely floated in 1983. The declines in the currency will bolster manufacturing and improve export returns as global prices for commodities such as iron ore and coal slump, Treasurer Chris Bowen said last month.
The government in December abandoned a pledge to return the budget to surplus last financial year and in May projected a deficit of A$18 billion ($16 billion) in the 12 months ending June 30, 2014. Prime Minister Kevin Rudd will increase taxes on tobacco to raise an extra A$5.3 billion as he seeks to offset the revenue shortfall and boost the government’s economic credibility before elections.
BG, the U.K.’s third-largest natural-gas producer, said last year that the cost of its Australian LNG project jumped 36 percent, partly because of gains in the Aussie and rising labor expenses. Santos Ltd. (STO) and a venture between ConocoPhillips (COP) and Origin Energy Ltd. (ORG) are also building LNG plants in Queensland state.
Australia’s LNG export earnings are forecast to surge fivefold to A$61 billion by 2018 from A$12 billion last year, the Bureau of Resources and Energy Economics said in a March report. That’s expected to make LNG the second-highest export earner, behind iron ore, the bureau said.
Australia’s LNG developments typically have 20-year contracts to sell the commodity in U.S. dollars to Asian customers at oil-linked prices, Tanna said.
“So this underpins a long revenue stream for federal and state budgets,” she said.
The Aussie dropped as low as 89.08 cents yesterday, its weakest since September 2010. The currency fell as bets the RBA will cut interest rates next week outweighed better-than-expected manufacturing data out of China.
Should the Aussie depreciate from an average $1.03 in fiscal 2013 to 94 cents in fiscal 2014, that would increase the value of iron ore exports by about A$6 billion, according to a June report from the government resources bureau. Further falls “would be additional support for the value in Australian dollars of export commodities denominated in U.S. dollars,” the bureau said.
BG plans to boost exploration spending in Australia by as much as 40 percent to about $350 million next year from $250 million this year, “which is a significant percentage of BG Group’s global exploration budget,” Tanna said. BG expects exploration spending globally to rise to $1.8 billion a year in the next three years from $1.6 billion this year, it said in May.
“We are very committed to exploring for more hydrocarbons here in Australia,” Tanna said. “This is exploration that will underpin future supplies domestically and potentially for expansion” of the LNG project in Australia, she said.
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