Impact Of Change In Value Of Currency On Australian Economy: Essay.

Discuss about the Impact of change in value of currency.

The increase in the value of Australian dollar has influenced the nation’s economy. Though the appreciation in the Australian dollar can offer several benefits to the Australian economy there are certain negative impacts of the same. The research is undertaken to analyse the impact of strengthening of dollar value in respect to US dollar and to identify the impacts of such changes. The currency value of a country plays wide role in its development and hence the economy of the country is sensitive to such changes.

The value of Australian dollar has been lower than that of US dollar since last few years. However, it has currently been observed that Australian dollar is strengthened over the US dollar and will continue to rise in the next coming days. The Australian currency has exceeded the ceiling limit of USD 79 and it is yet expected to grow. In the current year the AUD has increased 9.9% against USD.  The increment in the value was 1.5% overnight to USD 79.18 and ultimately climbing the peak at USD 79.43 (AFR, 2017. With the enhanced value of Australian dollar, the value of US dollar depreciates and also it leads to higher interest rates and commodity prices (The Conversation, 2017). Thus, as a result of strengthening of Australian dollar various socio economic factors issues may arise.

From the figure depicting the movement of value of Australian dollar with respect to the US dollar as shown below, it is identified that the value is fluctuating more often in the last 2 years. The minimum value was reported in the beginning of year 2016 and the maximum price is reported in the mid of year 2017 after various fluctuations.

Figure 1: Changes in the Australian dollar value as against US dollar

Source:  https://www.rba.gov.au/statistics/historical-data.html

The increase in the Australian dollar’s value signifies that the value of revenue in currency of US or any other country has decreased from what it was initially. Due to which it has negative influence on certain sectors. The commodities or the services that have been valued in the Australian currency will become more expensive if value is converted into US dollars or in any other currency. This would lead to reduction in exports for the country since there is a lesser demand of such commodities and services in the foreign markets. It will negatively affect the profitability of the Australian producers since they have to reduce their prices accordingly. Moreover, the imports of the country will consequently be increased with the increase in value as it will be cheaper to purchase goods and services from the overseas market. Further, the tourism industry of Australia will also be influenced by the increased value of its currency. The strengthening of Australian dollar makes it more expensive and therefore the tourists may not find it economical to visit Australia as their holiday destinations. However, the citizens of Australia finds it more economical to visit other countries for the tourism purposes.

Report

Apart from the tourism sector, the education industry will also be influenced by the change in the value of Australian dollar. Since the Australian dollar is getting expensive, the students from across the world finds it unfeasible to take admissions in the Australian universities as the tuition fees as well the living expenses are not affordable to them. They rather move to the countries like US or Britain for their studies. In Australia, the education sector is recognised as one among the key contributors to the development of nation’s economy.

The current trend of Australian dollar and US dollar has been shown in the following figure.

Figure 2: Current trend of Australian dollar and US dollar

Source: https://www.afr.com/personal-finance/shares/afr8simccarthy-20170806-gxqlxk 

Generally, the strengthening of the country’s currency is enjoyed by the citizens of that particular country as if it the support provided to them internationally. However, it cannot always bring positive impacts on the country’s economy. There can be various implications of the change in the value of the currency for both the nation as well as the investors. The value of investor’s portfolio is directly impacted with the change in the value of currency of the country of which investors are holding securities. With the dollar strengthening in Australia, there are various sectors and units that are significantly impacted such as education sectors, export industries, mining industries, farmers and various businesses. It has become difficult in terms of funds for the international students to take pursue their careers in the Australian universities due to increased cost of living and tuition fees of the Australian curriculum. This factor has reduced the generation of revenue for Australian economy from the students all over the world. It will also affect the national students due to increased academic fees. It will not only influence the revenue of the country negatively but also the careers of the local students will be affected as they would not be in the position to pursue the courses of their own choices and calibre due to higher prices. The increased value of Australian currency will also impact the farmers of the country by making the exports more expensive. When their produces gets costly the foreign importers finds these products less attractive and to continue selling them in the overseas markets requires those farmers and producers to reduce their prices by cutting their profits thereupon. The mining industry of Australia has also experienced the impact of such dollar strengthening. The companies in Australia that mainly generates their revenues in US dollar are also affected by such currency appreciation. Since with the increase in value of Australian dollar in respect to US dollar, the US dollar gets cheaper and as a consequence of which the those Australian companies are not able to make sufficient profits. Additionally, the debt of the businesses which have borrowed funds in the US currency is increased as they have to make more payment for the same debt.

For most of the businesses it is quite easy to predict the influences of change in the value of Australian dollar. For instance, it is easy for the education sector to understand the impact of change in the value of Australian dollar. The indicators like reduced number of student’s enrolment to the Australian universities, increased demand for the scholarships and migration of Australian and also foreign students to the universities with cheaper tuition fees can make it apparent how education sector of the country get affected with the change in the dollar value. The increased value will result in the price rise of the commodities that are traded globally reducing the overall exports of the country. Also, with the price rise the Australian consumers switch to the imports of goods from outside Australia. Such practices leads to the problem of trade deficit for the country due to reduced generation of foreign exchange and excessive utilisation of collected foreign exchange.

The complete research on the cause and effect of change in the value of Australian dollar can only make it possible to reach at a concrete decision. The above research makes it clear to improve the education and farming industry so as to improve the nation’s economy. The decision statement for the education sector can be like: How to encourage or attract foreign students towards the Australian universities for? An adequate response to this can improve the education industry of the country. On the other side, the decision statement of farming industry can be: What changes can bring favourable environment for the Australian farmers and to expand their market?

The main aim of conducting this research is to figure out the cause and impact of the increased value of Australian dollar. The report is mainly drawn to identify as to how the education sector and the farmers of the country have been affected due to dollar strengthening in Australia. The research will help in finding ways of bringing more candidature to the Australian universities. To reach at the final solution, interviews and discussions can be undertaken. The research objective for the education sector can be taken as to determine the key criteria used by the international students to choose Australian universities. Similarly, in the areas of farmer’s industry, the main aim of this research is to determine the ways from which the farmers of the country could be benefited and their business risk could be eliminated. Therefore, the research objective in this area can be framed as: Identification of reasons why international products are preferred over the local products by the general people. Several surveys in these contexts can be undertaken and the major focus groups could be interviewed to find the ultimate solutions. There can be various options of improving the position of these sectors such as imposing duties on imports, promoting exports by providing various subsidies and incentives etc.

Different hypotheses can be adopted under this research. A hypothesis is used to explain the research problem. It can either be a guess or a real output of the research study. However, these are not moral or ethical questions. Also, these questions are also not too general and not to specific. These questions are merely the future prediction of any related consequences of an issue. In relation to the education industry, the research is aimed to collect various data about the education sector of Australia such as the total number of students from outside Australia that are enrolling in the Australian universities, the curriculum courses they are opting etc. The hypothesis derived from the above research on the Australian dollar appreciation can be:

• With the reduction in the tuition fees, the number of enrolments of foreign students will increase.
• The countries where it is affordable for the students to bear the academic fees and living expenses, will be chosen by the students.
• The scholarship schemes can enable the students to select the courses of their own choices.

The data in the areas of farming units and other businesses can be collected like the quantum of import and exports of the produced goods of the country in the previous years, the comparative data of change in the net revenue with the dollar appreciation, the demand of local and international products in the market, the change in the overall profitability of farmers with the change in Australian dollar value. Following hypothesis can be derived from the research:

• The sale of national products can be improved by the pricing policies of the local market.
• Production of new and unique commodities can support the farmer’s occupation.
• The quality of the product can influence the consumers of farmer’s produces as quality is the important criteria to select goods and services.

Research questions also forms an integral part of business research. It helps in identifying the methods and guides throughout the research (Research Rundowns, 2017). On the basis of above formulate hypothesis, following research questions can be framed. This will allow the in depth examination of the issue involved in the research. 

• What factors can contribute to attract more students from outside Australia?
• How can the foreign students be influenced to take admissions to the Australian universities?
• What could be the key criteria that could be used by foreign students in deciding about their study plans in Australian universities?
• Do the changes in the value of Australian dollar influences the perception of foreign national students in deciding about the universities?

• To what extent the prices and the quality of the products influences the consumer’s choice.
• What are the factors that could change the demand of national products to the international products?
• Will there be any benefit or loss to the farmers with the change in dollar value in relation to the US dollar.

The above research is undertaken using all the factual information and other relevant data. It is intended to identify the potential problems of dollar value appreciation and the possible solutions to the same. The impact of such change in the Australian dollar value is majorly focused on two sectors the education and farming sector. Hence no consideration to ethical issues is being given under it. 

Conclusion & Recommendation:

From the above research it can be concluded that there can be several implications of change in the value of the currency of the country. The appreciation of Australian dollar has also imposed direct or indirect influence to various sectors of the Australian economy. Though the strengthening of a currency shows strong economic position of the country to which the currency belongs but on the other side it has some negative implications. The countries may have to face few problems due to such increase in value. Thus, a proper research can help to deal with such economic situations.

It is therefore recommended in the cases of education sector and farming sector to adopt both qualitative and quantitative research methods to improve and strengthened these sectors. The quantitative methods will help in extracting the true and factual information in the subject matter. The numerical and statistical data from these methods can offer better explanation of the issue involved. The quantitative data can be collected, analysed and interpreted with the help of figures and charts. On the other hand, qualitative methods are used to understand the human behaviour i.e. the responses of individuals to the change in the dollar value. The qualitative methods may include conducting personal interviews and questionnaire filling etc. The interviews of various students and education providers, farmers and producers can be conducted so as to understand the impact of change in dollar value in Australia and their consequences. Also, the methods and ways of dealing with the situations can be identified. 

References:

AFR (2017). Retrieved from https://www.afr.com/markets/currencies/australian-dollar-consolidates-above-us79-mark-20170718-gxdyc9

Michael McCarthy, (2017).  Australian Financial Review. Assessed on 13 august 2017 from https://www.afr.com/personal-finance/shares/afr8simccarthy-20170806-gxqlxk

Research Rundowns, (2017). Assessed on august 2017 from https://researchrundowns.com/intro/writing-research-questions/

The Conversation,(2017). Retrieved from https://theconversation.com/explainer-what-a-strong-australian-dollar-actually-means-699