The Australian dollar seems to be marching inexorably upwards with adverse impacts on import competing and export oriented industries. That includes manufacturing and service industries such as tourism.

The strength of the Australian dollar is a sign of the level of confidence investors have in Australia and it is also gaining support from interest rate differentials and from the continued demand for our resources.

The worrying thing is that the rise in the dollar is going to have major competitive impacts on key sectors such as manufacturing. It will exert enormous pressures on the sector driving restructuring in manufacturing and structural change in the economy.

The big issue is that I don’t think the rise in the dollar is temporary – it is not a short term phenomenon and I sense it may be sustained.

However, while forecasting exchange rates is a fool’s game, it would not surprise me if it continued to strengthen and at some stage in the next 18 months or so achieved parity with the US dollar.

Manufacturing is one sector that is particularly vulnerable to rises in the exchange rates. While manufacturers have done much to improve productivity and efficiency over recent times and many also have undertaken strategic decisions such as linking to global supply chains that can provide a hedge against currency movements, Ai Group research suggests that many manufactured exports and businesses competing against imports can become uncompetitive with the Aussie dollar around current levels.