Rabobank report: Aussie dollar stronger than expected, works against agricultural commodities

A stronger-than-expected Australian dollar is likely to work against exports of farm commodities, a Rabobank report has found.

Dire dollar: Returns for Australian agricultural commodities are likely to be reduced as a result of a stronger-than-expected Australian dollar.

RETURNS for Australian agricultural commodities exported overseas are likely to fall, with the exchange rate higher than earlier forecasts.

In its July Agribusiness Monthly report, Rabobank is tipping the Australian dollar to bottom out at 64 cents this year, much higher than the 60 cents it had forecast in its two previous reports.

But it is also hedging its bets, indicating the rise in COVID-19 infections in the US could spark great restrictions on people movement, potentially endangering its economic recovery and depressing the its currency against the Australian dollar.

A lower Australian dollar makes local exports more attractive to overseas buyers, but it also increases farmer’s buying power for imports of farm inputs, such as fertiliser, farm chemicals and oil.

The Australian dollar was trading at 69.5 US cents earlier today — much higher than earlier bank forecasts of 60 US cents.

“The AUD has clearly outperformed our expectations through the second quarter,” Rabobank said.

It said the Australian dollar continued to be pushed higher by a combination of global economic optimism, rising investor risk appetite, strong iron ore prices and an early reduction in infection rates in Australia compared with other countries.

“Rabobank expects global optimism to be tested in the coming months and expects risk appetites to wane,” the report said.

“The COVID-19 virus is yet to peak, secondary infection waves are quite likely, the cold war between the US and China looks set to ratchet up further over Hong Kong, and China’s economy will continue to struggle in the face of a weak global demand for its exports.”

Exports of Australian farm commodities have also been driven by lower demand by importing countries due to COVID-19.

Rabobank animal protein senior analyst Angus Gidley-Baird said May wool exports were 27 per cent lower than 2019 volumes.