The Exchange rate of the Australian dollar, determined in various different ways over time and the rate, now determined by various market forces and influences of the foreign and domestic markets, has a significant impact on the Australian economy. The value of the Australian dollar was determined through three separate periods, a fixed system of pegs to other countries and indexes, a managed flexible peg, and a floating system in use today. Changes in the global and domestic economy have a significant bearing on the value of the Australian dollar, generally through shifting capital flow either in or out of the country for various reasons. The exchange rate also has a significant impact on the Australian economy as it directly effects the countries …show more content…
One of the most important impacts on the value of the AUD has been Australia’s terms of trade, the ratio of an index of a country’s export prices to an index of its import prices. For example, increased demand in China for, coal, iron, nickel and other commodities is likely to increase the terms of trade and the demand for the AUD to buy these commodities, would go up, causing an appreciation in the currency. Another example is that of the Oil price. Oil is a significant import to Australia as the country generates nearly none of its own and is completely dependent on the global market. An increase in the supply of oil overseas is likely to drive down the terms of trade as the import of oil becomes less expensive. In turn, less AUD is sold to purchase oil therefore decreasing the supply of AUD on the market driving an appreciation in the currency. Domestic interest rates also play a key role in the value of the AUD. If the RBA cash rate is higher than those overseas it is likely to draw in capital, prompting an increase in demand for the AUD and an appreciation of the dollar. In the 1980’s Australia’s interest rate was far higher than that those of the global economy, as a result the exchange rate sharply increased. In 1990’s when Australian interest rates dipped below those of the US the AUD sharply depreciated. These are both examples of the influence of interest rates on the AUD. The risk-premium of global investments is also likely to have an important influence on the AUD exchange rate. When the risk-premium of European government debt increased during the European Sovereign debt crisis in 2009, investors turned to safer Australian government bonds, which had a much lower risk premium. To buy these bonds investors needed to purchase Australian dollars, driving up demand for the currency, however this demand was partially offset by private sector outflows at
it's situated in, hence, since it's so far up, the public may not be aware of it OPPORTUNITIES * Various promotions on special occasions (eg Valentine's Day, Mothers Day, etc ) * When the Australian dollar isn't doing well, it's a desirable exchange rate for tourists THREATS * Terrorism is ... ... middle of paper ... ... different areas of sales.
So when the dollar is depreciating, the exchange rate becomes smaller. Exchange rate (foreign exchange rate, forex rate or FX rate) is the number of units of a given currency that can be purchased for one unit of another currency. The United States capital markets are becoming more attractive to foreign investors. Since the dollar is falling, it makes foreigner’s investment in the United States more affordable. Therefore, foreigners take this opportunity to invest in the United States.
Economic indicators often affect and influence the value of a country's currency. The Trade Deficit, the Gross National Product (GNP), Industrial Production, the Unemployment Rate, and Business Inventories are examples of economic indicators. We will be dealing with four specific indicators: interest rate, inflation, unemployment, and employment growth, as well as Real Gross Domestic Product (GDP). Real GDP is so called because the effects of inflation and depreciation are accounted for in the figures. The state of the economy is important both on a micro and macroeconomic level.
Sukirno (2004) states that foreign exchange rates or foreign exchange rate is the price or value of a country's currency is expressed in another country's currency, or it can also be interpreted as the amount of domestic currency needed to get one unit of foreign currency. Meanwhile, according to Mankiw (2013) the exchange rate between two countries is a rate agreed resident of both countries for mutual trade with one another. Economists distinguish between the exchange rate being two (Mankiw, 2013), namely:
Foreign exchange is a commodity, and its price fluctuates based on supply and demand, like any commodity. This is not the place for a complete discussion of supply and demand as relates to foreign exchange, but for our purposes, we will assume that supply of and demand for a country’s currency moves along with the supply of or demand for that country’s products or the products of its trading partners. For example, if one country buys many more goods from its neighbor than its neighbor buys from it, the balance of payments at the end of the year will cause its neighbor’s currency to be in great demand, thereby driving its price up.
In recent years, monetary policy has become the prime tool of government macro-economic policies with a particular emphasis on interest rates as the main control variable within monetary policy. The prominence of interest rates means that monetary policy can affect the aggregate demand. For example, at higher interest rate levels, firms invest less and households spend less due to the increase in the cost of borrowing. Therefore, households and firms are less willing to borrow money for investing or consuming purposes. The rising interest rates also can have an affect on the international world. For instance, if the United Kingdom has relatively high interest rates in comparison to the rest of the world, it will cause the exchange rates to escalate. If the exchange rates rise due to the increase in interest rates, it will dramatically affect the United Kingdom’s competitiveness in the world market. The changes of interest rates and their effects can be explained by the transmission mechanism of monetary policy.
The stability of currency values plays a significant role for economic and financial stability. It is not difficult to see the exchange rate fluctuations are widely regarded as damaging. As the movements of the exchange rate have significant and large effects on the trade balance, resource allocation, domestic prices, interest rate, national income and other key economic variables. Then can exchange rate movements be predicted by these fundamental economic variables?
- High external debts (Australia has an account deficit due to high amounts of money invest towards mining)
Over the past five years the Australian economy has gone through many changes experiencing both the peaks and troughs associated with business cycle.
Australia has had one of the most outstanding economies of the world in recent years - competitive, open and vibrant. The nation’s high economic performance stems from effective economic management and ongoing structural reform. Australia has a competitive and dynamic private sector and a skilled, flexible workforce. It also has a comprehensive economic policy framework in place. The economy is globally competitive and remains an attractive destination for investment. Australia has a sound, stable and modern institutional structure that provides certainty to businesses. For long time, Australia is a stable democratic country with strong growth, low inflation and low interest rate.(Ning)
Fixed exchange rate which is at times known as pegged exchange rate is an exchange rate regime where a country’s currency value is fixed against the value of another currency or to another measure of value such as gold.
In 2008, there are global financial crisis because there are too many irresponsible borrower and could not afford to pay their loans back. The governments and central banks has protected the crisis, such as sizeable fiscal stimulus large reduction in interest rates, deposits the guarantees of bank and issuance, therefore let Australia has less considerably effect. The most effect in Australia is having a better growth outcome, but the experienced severe recessions and unemployment rises. After the crisis, the Australian banks still have profitable and no need any injections from government. With other impact from the crisis, households in Australia, they increase about 10 per cent of the prices and the Australian dollar also depreciated quickly.
Writing and literature have been man’s primary way of sharing and preserving information for thousands of years. However, while everyday pieces of writing such as letters or diary entries may seem mundane and trivial in comparison to textbooks or newspapers, such sources provide coherent information for historians and researchers that might otherwise be overlooked. Preserving and evaluating everyday writing helps people understand relevant social issues and feel more personally connected with historical events, in addition to providing relevant data for historians and researchers. Initially, ordinary pieces of writing provides historians a guide for writing secondary sources such as textbooks or websites.
As the foundation for the foreign exchange process, exchange rates are one of the most important elements in business, both internationally and domestically. Defined as the rate at which one currency may be converted into another, exchange rates are used by countries in order to purchase products or services from one another. When examining these exchange rates it is important to note that their two distinct types of rates used for global trade: nominal and real.
There is one thing that differentiates the international business with the domestic business where it uses more than one currency in the commercial transaction. For example, if a company from British purchases some goods from a company from US, the international transaction will require for exchanging pounds and U.S. dollars which involve the foreign exchange market. In the foreign exchange market, any country that wish to do business with foreign country, the country need to convert their domestic currency into the foreign currency that they are wish to cooperate with through foreign exchange.