Australia's Argument Against The US Dollar

The size of financial flows out of Australia The level of financial flows out of Australia will also be determined by the domestic interest rates relative to overseas as well as international confidence in Australia and other economies. If Australian interest rates are relatively lower and the confidence in the Australian economy has deteriorated, capital outflow will increase, thus increasing the supply of AUD. At the present, interest rates are at low levels, however they are expected to rise in the near future as economic confidence and growth are relatively high. This means there will not be a large increase in the supply of Australian dollars.

a) A fall in the value of the Australian dollar (AUD) against the U.S. dollar (USD) benefit Billabong in two folds, strengthened price competitiveness and translation advantage. Firstly, the Americas segment accounts for about 50% of Billabong’s sales revenue in 2008 and 2009. (Appx.1) In case of depreciation of AUD against USD, the price of imported surfwear to the U.S. in terms of USD will decrease. The US importers demand more for Billabong’s products. The sales increases from the strengthened price competitiveness. Secondly, when Billabong received payment from the importers, it will translated back into AUD for use in Australia. As AUD depreciate, the receipt in USD can be translated into more AUD than before, bringing

Because Australia has a floating exchange rate, the currency’s value is left to be determined by the market forces of international demand and supply. There is no specific measure of exchange rate volatility. Economists instead refer to movements in Australia’s bilateral exchange rate or movements in Australia’s TWI to demonstrate exchange rate volatility. Since floating in 1983, Australia’s exchange rate has been remarkably volatile. This has been seen especially in the past six to seven years, where the Australian dollar has appreciated substantially against the US dollar, from record lows in August 2001 of US48 cents

Australia’s lack of international competitiveness as a result of geographical location and small population, as well as the decline of the manufacturing industry to overseas low cost producers, with the problem being further increased by the high AUD exchange rate, as a result of the mining boom. The fall in domestic production has led to an increase in imports and a fall in productive innovation compared to advanced economies has led to a rise in CAD.

The Australian economy marks external stability as an important objective because it can influence other important aims such as economic growth, unemployment and inflation. External stability is the concept of sustaining a nation’s external accounts so that in the future, it is able to service its foreign liabilities and can avoid currency volatility. When looking at external stability, we must examine Australia’s balance of payments, which records all economic transactions between Australia and the rest of the world. Australia’s balance of payments has two components, which is the current account and the capital and financial account. The current account measures the receipts and payments for trade in goods and services, transfer payments and income flows, while the capital and financial account shows international borrowing, lending, purchasing and sales of assets.

Fourth, the global economic situation is not clear at present. The stock market collapse and economic data pointing to a slowdown in China have clouded the outlook for the global economy. At the same time the other emerging economies slowed their growth economy or started to fall. It has the negative impact on the exports. And it even outweighing any advantages the collapse of the dollar may

The benchmark investment rate in Australia was last recorded at 2.25%. Investment Rate in Australia found the middle value of 5.13 percent from 1990 until 2015, arriving at an unequaled high of 17.50 percent in January of 1990. Inflation Rate in Australia averaged 5.21 percent from 1951 until 2014. Customer costs in Australia rose 1.7% during the time to the December quarter 2014, the slowest yearly pace in more than two years as petrol costs dove. Australian yearly inflation rate abated to 2.3% in the second from last quarter of 2014 from 3.0 % in the past period, determined by a fall in cost of electricity, after the removal of tax duty on carbon discharge beginning early July. An alternate key variable that impacts the business is the unemployment rate. While the unemployment is staying high it is normal that RBA will keep the investment rates and trade rates low. Unemployment Rate in Australia diminished to 6.30% in February of 2015 from 6.40% in January of 2015. Unemployment Rate in Australia found to be in between 6.91% from 1978 until

The Exchange rate is the amount one country will buy another country’s currency. The conversion of currency is not 1 dollar for 1 dollar. The exchange rate between Australia and America is $0.7676 for 1 Australian dollar. Exchange rates can change from day to day. Back in 2011 the exchange rate between Australia and the USA was 1 Australian dollar would buy 1.015 US dollars. It was almost 1 for 1.

* Another effect would be as a result of the exchange rate fluctuations. Certain firms might not be protected to negative fluctuations as a result of dealing with yen as their primary mode of currency. This therefore can eat into the profitability of the Japanese firms and cause multinationals to shift overseas to a more stable country.

In terms of the current account, it could also affect it as exports are more expensive, so we get a fall in exports. Imports are cheaper and so we see an increase in imports. This will cause a bigger deficit on the current account as spending on imports is greater than income from exports and having a huge deficit means the economy is weak . Riley G(2012) states that although in the short term it would improve living standards, in the long term it means that they must ‘ must rely on foreign direct investment or borrow money to make up the difference’

Like the other currencies mentioned in the report, the Japanese Yen (¥) also adopts a floating exchange rate. As this is a short term forecast of the Australian Dollar (AUD) against the Japanese Yen (JPY), a chartist approach will be taken to analyse the movements of the two currencies. The technical method and the effects of the government are the topics that will be analysed for this short run forecast (Moffett et al, 2006 p.136). As of the 1st of September 2010 the Australian Dollar $1 = Y75.93.

For instance, Suppose Britain is the home country having the inflation rate of 2% and the foreign country which s Australia having an inflation of 8%.Then the foreign currency will have to depreciate by 6% (%∆e(foreign currency/domestic currency) = 6%) to help in offsetting the 6% fall in the real exchange rate caused by

You have just been transferred to Sydney and cover Australia and New Zealand on the sovereign research desk. Australia and New Zealand operate under a free trade agreement. No barriers to trade exist, and both currencies float. In this environment, an increase in expected inflation in New Zealand would most likely cause what effect?

Furthermore, foreign export will increase because of depreciation of the Dollar while the Dollar is weak, it will increase the demand for U.S goods in foreign countries. Similarly, exports in U.S will increase whereas imports will decrease.

The international investors are the ones who are directly affected by the devaluation of currency. It causes their total assets in real terms to go down, which means their confidence level in the country’s economy is hit. This causes the withdrawal of the investments in large amounts. This pressures the buy side which may not be able to match the selloff, causing a dip in the prices suddenly, which in turn results in the markets tanking. This causes a panic situation in the markets that the international investors have invested in.