The Australian dollar relative to the US dollar has lifted to levels not seen since early 2023, and not sustained since early 2022. We all know a rising Aussie dollar is negative for grain prices, making our grain more expensive relative to US grain in export markets. Here, we put some context around the impact of the AUD near 70¢.
The combination of uncertainty surrounding aspects of US governance is the main reason for the continued weakness of the US dollar, which has fallen against most currencies. Helping the Aussie dollar jump last week was the realisation of an interest rate rise.
Stronger interest rates here, while foreign rates remain static, see cash flow into the Australian dollar to take advantage of stronger returns. For grain producers carrying debt, a rising interest rate has a double whammy effect of higher interest costs and decreasing grain prices in our terms.
Figure 1 shows the AUD hitting 70US¢ last week, before easing back to a range between 69 and 70US¢. This time last year, the AUD was closer to 63US¢.
At the current SRW price of 527¢/bu, each cent the AUD gains relative to the USD strips close to $4/t off the price locally. The recent increase in the AUD from 67US¢ to 70US¢ should have seen around $12/t wiped off the value of wheat.
In reality, SRW in our terms is now down $5 on the price of a fortnight ago. A weaker US dollar tends to see wheat prices in the US strengthen, as US wheat becomes cheaper in international export markets.
It isn’t surprising to see Aussie wheat lose a little ground and US wheat gain a little ground, rather than the benefit flowing entirely to one side.
Figure 2 shows that local wheat prices have remained relatively steady, as they have since harvest. With prices on the low side, sellers are reluctant, but buyers aren’t going to push basis higher with a large wheat crop to export.
A stronger AUD relative to the US dollar does have some impact on canola values, but with international prices based in Europe and Canada, the effect is not as strong (Figure 3). The AUD did rally against the euro thanks to higher interest rates, but remains weaker than this time last year.
What does it mean?
A stronger Aussie dollar does impact grain and oilseed prices, but the effect can be indirect as global markets adjust to changing currencies. An upward trend in the AUD is some concern, but if it is driven by general US dollar weakness, rather than the AUD strengthening against all currencies, the net loss can be minimal.
Key Points
- The Aussie dollar has risen to a three year high.
- Uncertainty in the US and rising interest rates here has seen the AUD rally.
- Direct impacts on grain prices have been minimal so far.
Click on figure to expand
Click on figure to expand
Click on figure to expand
Data sources: ABARES, Bloomberg, Mecardo
