Australian Currency Depreciation Essay

The exchange rate is the price of one currency in terms of another. A fall in the value of the pound is known as a depreciation and affects both the level of aggregate demand and the costs of production for firms in the UK economy. //One way in which a fall in the exchange rate can be beneficial for the UK economy is that it “should

First we must look and account for the causes for the recent trends in balance of payments. This is very important as it reflects key features of the structure of the economy and highlights the imbalances in the relationship between Australia and the economy. In particular, we must inspect the current account deficit (CAD), which is when the debits are greater than the credits recorded as a percentage of GDP and is an accurate indicator of the economy’s current position.

The value of the Canadian dollar tends to moves in tandem with oil prices so as oil prices have been falling recently, so has the value of the Canadian dollar. A depreciation of the Canadian dollar makes Canadian exports relatively more competitive in the world market however, as Canadian exports become cheaper relative to its imports, this negatively affects the Canadian terms of trade. This

Started from late 1800s, Australian mining boom is an inevitable part of modern Australian history. From gold and copper to iron and gas, the several terms of mining boom made great contribution to Australian community and economy including providing source of employment, attracting immigrants and stimulating international trading. The mining boom is considered to be a shock to the Australian economy.“This combination of shocks has boosted the purchasing power and volume of Australian output. It has also led to large changes in relative prices, most noticeably an appreciation of the exchange

Marcio Alaor relates that the economic crisis that hit the world hard back in 2008 had a resounding affect on all the developed countries. However, Australia is a totally different story. Economists across the world are turning their attention to the country and wondering what is their secret. In fact, data released showed that the countries economy grew by a tremendous 2.5 percent, while other countries experienced major downfalls in the economy. The surprising fact is that this is the countries 25th consecutive year without a recession. Alaor relates that the world went through an economic crisis in the nineties. Australia was still able to keep their economic system growing.

During this period the Australian dollar pegged to set against the U.S. dollar in 1971 and during 1972 Australia was seeing a surplus in the balance of payments with a large amount of capital inflow but the Australian dollar was still undervalued. This period also saw the devaluation of the U.S. dollar due to the pressure on the U.S. dollar to make a halt on the capital inflow, but Australia did not follow this devaluation. This resulted in the appreciation of the

The Gross Domestic Product in Australia enlarged by 0.2 percent in the second quarter of 2015 above the first quarter. GDP Growth Rate in Australia was around 0.87 percent from 1959 until 2015. It reached an all-time high of 4.4 percent in the first quarter of 1976 and a record low of negative 2 percent in the second quarter of 1974. In 2013, Australia’s GDP per capita was $67,458.36 in U.S. dollars, and the United States’ was only $53,041.98. The inflation rate in Australia was documented at 1.5 percent in the second quarter of 2015. Inflation Rate in Australia was around 5.18 percent from 1951 until 2015. It reached an all-time high of 23.9 percent in the fourth part of 1951 and a record low of -1.3 percent in the second quarter of 1962 (“Australia Inflation Rate,” 2015).

There is general consensus that the principal reason behind the strong Aussie dollar is that Australia currently fits the needs of one of the fastest growing regions in the world Asia. Australia’s strong Asian ties and Asia’s demand for our resources all work in the favour of the Australian dollar, and have helped sustain the rise of the Australian dollar against other leading currencies. The strength of the Australian dollar is not only a product of weaknesses in other major currencies. With low government debt, steady unemployment levels and a Triple A credit status, Australia’s economy is in a relatively healthy position, particularly compared with other major currencies including the Euro, US dollar and the Pound.

This Business Report studies the impact of the Brexit vote in Europe on Australia’s economy. It examines the changes of the economic variables consumption expenditure, government spending, investment and net exports due to the arisen uncertainty by the recent events. Furthermore, an outlook is given on how these variables are expected to change over the next six months. Based on the findings that the economic variables are going to decrease, GDP is anticipated to drop to a lower level accordingly. It is therefore proposed that the Senior Management Team lowers the cash rate in order to facilitate the growth of Australia’s economic variables.

Australian banks are hungry for foreign debt, which has driven down funding costs for U.S. borrowers, and tempted more overseas firms to take on Australian debt. Some firms that were attracted to the down funding costs are Apple Inc., Intel Corp., Ford Motor Co., and Coca-Cola Co. These companies have sold kangaroo bonds at high values, with Apple’s being the highest and valued at A$2.25 billion. A lot is also going on in Australia. Australia recently celebrated a 25-year streak of being recession-less. Twenty-five years of being recession-less had impacts on Australia’s stocks, bonds, and property. Australia is enjoying the longest economic expansion in the developed world. Their credit rating has been downgraded by S&P due to political issues. With everything going on in Australia, it is growing at a fast pace, faster than most other countries in the world.

The reasons that depreciates Australian dollar are as follows, though in the article main focus was on interest rates and inflation but the discussion will not be completed if under the carpet factors are not discussed:

The Australian Dollar (AUD), or “Aussie” for short, is the official currency of Australia. Its symbol is the same as the US Dollar, $. Exchange rate movements are commonly discussed in terms of US Dollars per AU Dollars (USD/AUD) or British Pound Sterling to AUD (GPD/AUD). While the Australian economy is only the 12th biggest economy in the world by nominal GDP, according to the Word Bank website, the AUD is the fifth most traded currency in the world by value (“GDP Rankings”, 1). The AUD was initially introduced in 1966 after the official Australian currency being the British Pound Sterling since 1825 and the Australian Pound being pegged to the British Pound Sterling from 1910 to 1966 ("Museum of Australian Currency Notes”, 1). In 1966 the AUD was finally introduced, but was pegged to the USD in 1971 at a rate of between 1.1 and 1.4 USD/AUD, on average. The Australian Dollar was finally floated in 1983 ("Museum of Australian Currency Notes”, 2). There is no more direct reliance on any other countries currency.

As far as the trend in export price is concerned, the Australian economy has grown from 54.7 in 2000 to 80.7 in 2015. Although, the economy has experienced many fluctuations in the interval, but faced a decline during the global recession periods by dipping to 73.8 in 2007 but a rise in export indices to 92.3 in 2008. However, the export rise has been more in value terms when after the 2009 till 2012 and hence a declining price index since 2012. The graph depicting the fluctuating trend in export indices is given below.

Figure 5 illustrate the trend of exchange rate between AUD and USD for the past 30 days. From the graph we can see that at the beginning of the month, Australian dollar to 1 US dollar equals to 0.91346, which is the lowest level during the month. The trend has been increased in the following few days and then declined again. The general trend from 12th of May remain an upward trend and reached the peak of 0.952378 on 25th of May, and followed by a decline at the rest of the month.

Current reports, experts and articles all indicate that conditions of the global economy are currently very poor. Looking past a number of singularities and minor issues, most reports point towards three main economic issues as the cause of the weak worldwide markets; poor productivity in China, recent slumps in the value of commodities, and minimal investor confidence. This section will analyse exactly what these issues are, how they are effecting the global economy and what impact they have on Australia.