Effect Of Change In Australian Dollar On The Economy - Analysis And Recommendations

Background (research findings)

Discuss about the Effect of change in Australian dollar on the Economy.

Australia has been considered a medium size country compared to the other nations in the world. Australia is also viewed to be much smaller than the United States in regards to everything. The interest rate and inflation rate is also very complicate in the economy and gets affected by the changing exchange rate of Australian Dollars. Australian dollar has experienced fluctuation in its rate over the years. However, recently in 2017 the country has experienced an increase in their exchange rate, which has put an effect on every aspect of the economy (Dailyfx.com 2017).

This paper will discuss about the trend of exchange rate over the past three years and witness that the rate has increased recently. Further, it will analyse the effect of increase in exchange rate on four people of the economy and four business categories. It will evaluate the various effects on any two-business categories and suggest the objectives and question the businesses should aim while taking the research.

The Australian dollar has risen for the first time against the US dollar in 2017. This is encouraging the economic conditions of Australia. The value of the Australian dollar (AUD) keeps on fluctuating everyday. The Australian Dollar has increased against the US dollar since the beginning of the year and several strategies were set for stabilizing the exchange rate. The companies for the transaction of businesses need the foreign currencies. This influences the exchange rate movements of the two countries and it affects the investors who are trying to be benefitted from this fluctuations.  The demand for the particular currency will affect the market price of the currency. When people buy or sell the currencies in bulk quantities, the value of the Australian dollar will fluctuate (Apergis and Papoulakos 2013).

 Fig:  Table showing the value of 1 USD against different AUD values in the last three years

Source- Trading Economics 2017

Fig- Graph showing the USD and AUD in the last three years

Source- Author’s creation

From the above table and graph, it can be said that the value of AUD is fluctuating against 1 unit of US dollar. This means that an exporter of US has to pay a higher amount of money if wishes to export any commodity to Australia.

Fig- Graph showing the value of 1 AUD against different USD values

Report

Source- Trading Economics

Fig- Graph showing the USD and AUD in the last three years

Source- Author’s Creation

From the above table and graph, it can be said that the value of the US dollar is lower than the AUD. For 1 unit of AUD an exporter of US has to higher amount of US dollar because of the low value of the US dollar.

Aim of this research study

The aim of the research is to analyse the effect of change in exchange rate of Australian Dollar to U.S. Dollars on the economy of Australia. It aim to point out four people of the economy which will be most affected by the change in the exchange rate. Business is state to be one of the people affected with this change. Thus, the paper also aims to analyse the effect of changes in exchange rate on two types of business. The main objective of to offer suggestions to the business by which they can carry out research on how to deal with the influence of the changes (Engel, Mark, and West 2015).

Four groups of people affected by increase  in Australian Dollar to U.S. Dollar

From the above analysis, it is seen that the rate of Australian dollar as compared to U.S. dollar has experienced a rise recently. However, the change in the Australian dollar poses a lot of affect on the working of the economy. Various categories of people are affected due to this increase such as business class people, households, farmers and financial institutions. The business class people are highly affected by this increase because with an increase in rate of Australian dollar to U.S dollar they can now import raw materials, labour, and other requirements from U.S at a relatively cheap rate. Similarly, households and farmers will be impacted because these businesses will now offer their products in their home market at low price because of decrease in cost. Financial institutions will also be impacted negatively as increase in exchange rate will decrease the interest rate taken by these institutions (Ilzetzki, Reinhart, and Rogoff 2017).

Four business categories that are affected by the movement of Australian dollar

The retailers, tourism industry, forex traders and real estate businessmen will be affected by the fluctuation in the Australian dollars. The retailers in Australia will have to pay less when the value of US dollar will decrease. This will boost up their exports. The tourism industry is also affected to large extent in this case. When a traveler wants to visit Australia and suddenly the value of the Australian dollar has risen, the traveler in US has to pay more amounts and this will affect the tourism industry. The real estate business will also be affected. The prices of the property in Australia will rise when the value of the US dollar falls. The forex traders will also be affected when there is rise in the Australian dollar. The traders have to get involved in a large set of economic data for taking decisions in the exchange market. They have to rely on the speculative outlook in the market and thus make further investment (Di Iorio and Faff 2015).

Symptoms and likely symptoms of retailers and real estate industry

It will be beneficial for the Australian retailers if the value of the Australian dollar increases. They will try to increase their exports as it will be beneficial for them.  The Australian retailers will try to spend more on imports rather than investing in other foreign countries. The retailers will try to import the raw materials at a cheaper price. The interest rate of the commodities will fall and these will attract the businessmen to invest more (Haque, Topal and Lilford 2015).  The likely symptoms in the retail industry are that the unit pricing value will be increased and this will boost up the sales.  The domestic property in Australia will be more attractive for the foreigners and they will invest more because the value of dollar has increased. The buyers of the property in Australian will spend more and thus they will try to negotiate and settle at particular case.  The likely symptoms is that the real estate holders must be aware of the fluctuating prices so that they do not run in losses (Monadjemi and Lodewijks 2017)

Decision Statement and Research Objectives for retail and real estate business

Decision statement for retail business:

From the research on the increase in the exchange rate of Australian Dollar to U.S. Dollar the retail sector has to decide on their amount of changes in their import and export compared to previous years when exchange rate was less (McCombie and Thirlwall 2016).

Research Objective of retail sector:

• Analyse the impact of exchange rate
• Manage the cost of production accordingly
• Decide on the rate of increase or decrease in import and export by the industry
• Future estimation of the change in exchange rate

Decision statement for real estate sector:

The retail sector has to decide the price of the property they will sell in their home country after the increase in the exchange rate from the research (Amiti, Itskhoki, and Konings 2014).

Research objective of the real estate sector:

• Analyse the impact of exchange rate
• Make adjustment in the cost of buying the property
• Make future estimation of change in property price and influence present decision

Three hypotheses for Retail and real Estate sector

From the above analysis on the effect of change in exchange rate on the Retail and Real Estate sector three hypothesis can be stated.

• Retail sector is positively impacted by an increase in exchange rate as their rate of import of raw material will fall
• Real estate sector will benefit from an increase in exchange rate as price of property will fall presently
• The increase in the exchange rate of Australian dollar to U.S dollar will have an overall positive impact on the two sectors

Research questions for the two businesses

• What is the impact of the change in exchange rate on the decision of the buyers for retail sector?
• How will the real estate sector analyse the future change in the price of property?
• How will the retail sector adjust their supply after the fall in their cost of production?
• What is the differences in the past and present decision making of the real estate sector?

Ethical Consideration

It is very important to maintain the ethics while carrying out a research work. There are certain things, which have to keep in mind while conducting the research. The researcher must keep an eye that they maintain the confidentiality of the retailers and the consumers while carrying out the research work. The research must also be plagiarism free. There are certain ethical standards, which must be followed to prevent falsifying, or fabrication of the data. The sentiments and ideas of the participants in the research must not be harmed while carrying out the research. Moreover, before conducting the research work it is also vital to take the consent of the participants in the research. While conducting the primary research in the retail sector, it is vital to respect the sentiments and confidentiality of the consumers (Bryman and Bell, 2015).

Conclusion

Thus, it can be said that if the cost of Australian dollar increases, imports will become cheaper and the business sectors will face competition from the other competitors. The local companies will become less competitive because the consumers have more buying power and they will prefer imported goods rather than local goods. The general outlook of the company for the growth and the movement of the commodity prices in Australian will also be affected by the fluctuations in the price of the dollar. The benefit of interest rate from the Australian dollar will also increase and thus this will attract the investors to buy more of Australian dollars.

From the above analysis and the objective that the retail sector and the real estate business have to analyse, it is recommended that these sectors take up primary as well as secondary research for the analysis. However, the sector should mainly focus on the secondary research to see the trend of the exchange rate over the years in Australia and based their decision on that ground (Creswell 2013). Primary research could be taken by the retail sector on the trend on changes in the demand of people after the increase I exchange rate. Depending on result the retail sector will change their supply of products. For that, collection in primary research retail sector can survey through questionnaire method that it can put in their official sites for collecting the responses of consumers. Lastly, the result of the research can be summarised in a descriptive method so that it is understandable by each member of the business (Flick 2015).

References

Amiti, M., Itskhoki, O. and Konings, J., 2014. Importers, exporters, and exchange rate disconnect. The American Economic Review, 104(7), pp.1942-1978.

Apergis, N. and Papoulakos, D., 2013. The Australian dollar and gold prices. The Open Economics Journal, 6, pp.1-10.

Bryman, A., & Bell, E. 2015. Business research methods. USA: Oxford University Press.

Creswell, J. W. 2013. Research design: Qualitative, quantitative, and mixed methods approaches. Sage publications.

Dailyfx.com. (2017). AUD/USD - Live Rate, Forecast, News and Analysis. [online] Available at: https://www.dailyfx.com/aud-usd [Accessed 16 Aug. 2017].

Di Iorio, A. and Faff, R.W., 2015. The effect of intervaling on the foreign exchange exposure of Australian stock returns.           

Engel, C., Mark, N.C. and West, K.D., 2015. Factor model forecasts of exchange rates. Econometric Reviews, 34(1-2), pp.32-55.

Flick, U. 2015.Introducing research methodology: A beginner's guide to doing a research project. USA: Sage.

Haque, M.A., Topal, E. and Lilford, E., 2015. Iron ore prices and the value of the Australian dollar. Mining Technology, 124(2), pp.107-120.

Hsing, Y., 2015. Determinants of the AUD/USD Exchange Rate and Policy Implications. Asian Economic and Financial Review, 5(2), pp.326-332.

Ilzetzki, E., Reinhart, C.M. and Rogoff, K.S., 2017. The Country Chronologies to Exchange Rate Arrangements into the 21st Century: Will the Anchor Currency Hold? (No. w23135). National Bureau of Economic Research.

McCombie, J. and Thirlwall, A.P., 2016. Economic growth and the balance-of-payments constraint. Springer.

Monadjemi, M. and Lodewijks, J., 2017. Global Economy and the Australian Dollar. Expert Journal of Economics, 5(2), pp.47-52.

tradingeconomics.com  2017. Australian Dollar. [online] Available at: https://tradingeconomics.com/australia/currency [Accessed 16 Aug. 2017]