Pros and Cons of an Appreciation in Australian Dollar

1682 WordsNov 4, 20127 Pages
Pros and Cons of an appreciation in Australian dollar In the recent days, Australian dollar has witnesses a significant appreciation and keeps strong. To put in a simple way, appreciation of Australian dollar, for our ordinary consumer, means we can buy more goods than before using the same amount of money. This is caused by an increase of purchase power of Australian dollar. As for choices of consumers, foreign goods are especially welcomed for the simple reason that they become relatively cheaper than local produced goods, which is due to the high exchange rate. In addition, for overseas student, they will cost more than before to afford the expensive tuition fee. The tuition fee in Australia is kept the same amount; however, because of…show more content…
That pattern of rising prices and declining real earnings repeated itself in February and March, with a sharp rise in the consumer price index causing real average weekly earnings to decline at an annual rate of more than 5 percent. There is no doubt that consumer`s confidence level fell sharply and consumer spending remained almost flat from month to month. Furthermore, a loose monetary policy occurs when the money supply is expanded and is easily accessible to citizens to encourage economic growth. According to the Global Futures & Forex, the Federal Reserve announced that it will keep rates low, and that it will continue with plans for an asset buy from the Treasury. The Federal Reserve (Fed) has lowered the cash rate to 0.250% and has undertaken quantitative easing to lower longer-term interest rates, with a second round of easing planned. Quantitative easing involves a central bank purchasing financial assets from banks and other private sector businesses with new electronically created money, thus increasing the money supply. And then it weakens the US dollar against other currencies. Furthermore, while US interest rates remain low for the short term, investors will seek out higher-yielding opportunities, such as Australian dollar denominated assets. This will tend to strengthen the Australian dollar. The reasons that Australian dollar is very strong recently are shown above. But, what does it mean for consumers? To be simple, Australian dollar has more

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