Tourism sector nervous over impact of high value

The Gold Coast News says that the Australian dollar breached US95c for the second time in as many weeks yesterday prompting one key economist to forecast the currency would reach parity with the greenback by the end of the year.

The forecast, should it prove true, would have dire consequences for the Gold Coast tourism industry and the city’s exporters.

Westpac chief economist Bill Evans yesterday said the Australian dollar was likely to buy $US1.01 by March next year, the first time it has breached parity since the currency was floated by the Hawke Labor government in 1983.

The dollar’s surge would be driven by further interest rate cuts in the US, said Mr Evans, who also concedes the currency could go even higher.

“I think it will go to parity and go beyond parity and stay near parity for some time, but I would probably expect to see it weaker near the end of 2009,” he said.

The Australian dollar retreated from its highs by the close of trade yesterday, finishing at US94.67c, up from US94.54 on Tuesday.

The currency lost some steam yesterday afternoon after Federal Reserve Bank of Kansas City president Thomas Hoenig said US inflation pressures were ‘troublesome’, causing analysts to question whether further rate cuts were prudent in the world’s biggest economy.

“The bigger concern is that these increases are beginning to generate an inflation psychology to an extent that I have not seen since the 1970s and early 1980s,” he said.

ANZ senior strategist Sally Auld said Dr Hoenig’s comments boosted the US dollar, which had faced selling pressure overnight on Tuesday.

The US Federal Reserve cut interest rates last week by another 25 basis points, which took the federal funds rate to 2 per cent for the first time since late 2004.

Dr Hoenig, who is not a voting member of the US central bank’s Federal Open Market Committee, said the US economic slowdown was likely to be shortlived.

The Australian dollar is tipped to test $US95c today in the event that labour force data for April shows the creation of more than 10,000 new jobs, which the market is expecting.

Economists expect the jobless rate to stay at a near three-decade low of 4.1 per cent.

However, the surging currency is creating a nervous time ahead for Gold Coast tourism operators as a high dollar makes Australia a less appealing destination for international tourists and more appealing for Australians to holiday overseas.

“That’s exactly why we can’t be too complacent domestically,” said Gold Coast Tourism spokesman Ben Pole last night.

“We’ve been whacked on all sides in the tourism industry.”

He said poor summer weather, rising fuel prices and interest rate hikes had all conspired for a ‘dismal’ start to 2008 after a rise of 3.5 per cent in foreign and domestic visitors in 2007.

Figures for the first quarter are not yet available, although anecdotal evidence suggests tourist numbers have been affected in recent months.

Gold Coast Tourism, which is focusing on luring increasingly affluent Asian tourists to the city, was rocked last week by news the city council was slashing it funding for the organisation by $5.5 million this year.

Mr Pole said the cutbacks could not have come at a worse time.

“We’re going to struggle to grow the tourism industry (as a result),” he said.

A Report by The Mole from the Gold Coast News