Background
After the financial crisis, Australia is observed to be progressing from the recession and there has been a minor increase and decrease. However, as per the data of Reserve Bank of Australia, the exchange rate of Australian against US Dollar remained steady with slight rise and fall of exchange rate (Apergis 2014). The paper intends to discuss hat exchanged rate has a key role in a nation’s trade level that is essential for most free market economy globally. Conversely, exchange rates must be considered on a smaller scale as this effect the real return on an investor’s portfolio. Moreover, the paper will reveal several factors that impact the value of Australian dollar in comparison to US dollar.
2.1. Research Problem
The Australian dollar exchange rate fluctuations have been noticed in comparison to US Dollar and in the forecast of continuing to do the same might increase the degree of uncertainty for certain businesses (Avdjiev et al. 2016). Australian dollar value falls and rises in correspondence with other currencies all through the world each day. Considering such research problem, it is gathered that if such Australian currency movement is not properly managed, the nation might collapse as civilians might not be able to acquire most of the imported goods particularly from developed nations with powerful currencies such as US and Australian dollar (Cavoli and Rajan 2014).
2.2. Research Objectives
Research objectives are mentioned below:
- Identification of the research problem through evaluating the broader theoretical, economical, historical, social, business long with intellectual aspects.
- Investigating the social, business and economic issues associated with fluctuating Australian dollar along with analyzing the Australian dollar trends over three years
Question 1
The aim of this research study is to investigate the social, business and economic issues associated with fluctuating Australian dollar along with analyzing the Australian dollar trends over three years (Ilzetzki, Reinhart and Rogoff 2017). The research is intended to explain the Australian dollar exchange rate fluctuations in comparison to US Dollar and in the forecast of continuing to do the same might increase the degree of uncertainty for certain businesses (Di Iorio and Faff 2015).
Question 2
There are four groups of people that can be affected by such Australian dollar movement. Export, import, domestic and international investor groups are deemed to be affected by rise and fall of Australian dollar exchange rate in comparison to US dollar. And these also react to such fluctuations (Eickmeier and Ng 2015). For the exporter and importer groups, the fact that Australian dollar along with US dollar tends to rise and fall along with commodity and oil prices. Moreover, exchange rate fluctuations impact the associated prices of traded services and goods that increase the competitiveness of international and domestic trade and encourage Australian dollar depreciation (Ilzetzki, Reinhart and Rogoff 2017).
Domestic and international investors are easily impacted by Australian dollar movement. Speculation regarding devaluation resulted in investors to delay bringing funds within Australia in case it is assumed that assets might soon be cheaper (Stoši? et al. 2015). Domestic and international investors consider that Australian exchange rate movements marked a gradual increase in riskiness of investment within Australia as a consequence of drastic increase in external debt (Ilzetzki, Reinhart and Rogoff 2017). International investors are highly affected from the exchange rate movements in Australian dollar comparing with US dollar. As, when these investors acquire a foreign stock, these investors have to make two types of decision such as the organization itself and the currency (Ilzetzki, Reinhart and Rogoff 2017). Australian dollar fluctuation might present two scenarios, among which the desirable is rising stock prices and attaining increased benefit from currency strengthening. The worst case for the investors can be that the stock is going down and the Australian currency loses value in comparison to the US dollar (Ilzetzki, Reinhart and Rogoff 2017).
Answering Questions
Australian dollar rate fluctuations have impacted four business categories including a gold miner “Evolution Mining”, an airline “Qantas”, a consumer goods retailer “JB HI-FI” and an online business of selling and buying cars “Carsales.com” (Jiang and Gu 2016). Impact on these businesses from Australian dollar movement is explained below:
- Direct exposure to the commodities: It is vital to note that the Australian dollar serves as a special currency for the reason that it shifts as per the prices of the commodities along with the shares of the commodity-based organizations. Australian dollar is a commodity currency. Such commodity currency link is particularly vital for Evolution Mining that gains benefits from increasing gold prices and for Qantas that lose with the increase of oil prices (Moosa 2016). As the Australian Dollar rises with the increase in commodity, an appreciating AUD is effective for Evolution Mining and can prove to be worse for Qantas.
- Less or no exposure to the commodities: These four companies deal with the currency impacts that are more in accordance with the classical theory. JB HI-FI imports most of the goods sold by the company and for this reason; its profits are gradually impacted by a stronger Australian Dollar for the cheaper imported goods (Nguyen and Duncan 2017). Similar impact of the Australian Dollar exchange rate fluctuation is noticed for Carsales.com operations within the nation for numerous cars and parts are imported (Ilzetzki, Reinhart and Rogoff 2017). Conversely, the organization also has its operation in Asian markets and Latin America which makes the total impact more difficult to measure. This also depends on the currency correlations within the regions along with between the regions. An elevated correlation indicates an increased currency exposure (Pierdzioch, Risse and Rohloff 2016). All three companies attempt to decrease the currency risk through locking in the price over a definite period by means of employing forward exchange derivatives and contracts. For the reason that the Australian Dollar is a commodity currency, this has been observed to have drastic impact on organizations like Qantas and Evolution Mining than on the organizations that includes JB Hi-Fi and Carsales.com.
Australian exchange rate fluctuations are deemed to indicate certain symptoms on the businesses of an airline “Qantas” and a consumer goods retailer “JB HI-FI”. Certain currency moves might have a several impacts based on symptoms of a domestic economy but also on the international one (Hughen and Beyer 2015). Another symptom is that investors might employ such moves to their advantage through overseas investment or among the US multinationals at the time the greenback is weak. One more symptom is that the currency moves might be a potent risk at the time one has a huge forex exposures, it might be best to hedge these risks through several available hedging instruments (Ilzetzki, Reinhart and Rogoff 2017). Another symptom that can be noticed is that Australian Dollar has been moving more against the US Dollar counterpart over the past few years as taken decision by the Federal Reserve in order to increase the interest rates.
The decision statement of the research is focused on offering a significant contribution to knowledge for these centres on the evaluation of Australian dollar exchange rate fluctuation on certain selected parameters within the nation (Garcia-Fuentes and Fukasawa 2016). The research has decided to make a great contribution for enhancing share performance of selected businesses through analyzing the dynamic nature of exchange rates, capability of business individuals to acquire goods and services within foreign currencies (Haque, Topal and Lilford 2015). This is greatly impacted by Australian exchange rate fluctuation. Research objectives are mentioned below:
- Identification of the research problem through evaluating the broader theoretical, economical, historical, social, business long with intellectual aspects.
- Investigating the social, business and economic issues associated with fluctuating Australian dollar along with analyzing the Australian dollar trends over three years.
Three hypotheses that are considered to be tested in the research by the two businesses namely an airline “Qantas” and a consumer goods retailer “JB HI-FI” have been prepared that are explained under:
- Hypothesis 1:There is a positive influence of Australian exchange rate fluctuation on the accessibility of company’s services and goods.
- Hypothesis 2:There is a positive influence of exchange rate fluctuation on the foreign currencies fluctuations.
- Hypothesis 3:There is a positive impact of Australian exchange rate fluctuations on the demand on the demand of foreign US currencies.
Four research questions for two selected businesses namely an airline “Qantas” and a consumer goods retailer “JB HI-FI” have been prepared that are explained under:
- How do the fluctuations in Australian exchange rate impacts the purchase of goods or services within the foreign currencies along with indicating the ways in which the exchange rate fluctuations impacts the purchase of services and goods in USD trough employing the average exchange rates for three years from 2012 to 2014?
- How do the selected companies evaluate the revaluation because of fluctuation in Australian exchange rate in terms of US olla through using USD exchange rates against Australian current for three years from 2012 to 2014?
- What are the suitable techniques in dealing with risks of such Australian exchange rate fluctuations?
- What are the social, business and economic issues associated with fluctuating Australian dollar along with analyzing the Australian dollar trends over three years from 2012 to 2014?
Certain ethical issues must be considered while completion of the research regarding the impact of Australian dollar exchange rate fluctuations compared with US dollar on the two selected business categories (Fabling and Sanderson 2015). In order to comply with the research ethics, the respondents in the research were previously infirmed regarding the objective if data collection along with the aim of the research. An increased focus was put on the fact that the research was carried out for academic reasons and that information that is collected was solely for the academic use and for evaluating the impact of the fluctuations in Australian exchange rate on the revaluation of foreign currencies within Australia (Ferraro, Rogoff and Rossi 2015). In addition to that, the respondents also were ensured that the responses will be maintained confidentially. The researcher also made sure that this research is his sole work and its reliability along with its accuracy is maintained.
Question 3
Two of the selected businesses are provided with appropriate recommendations regarding the research that can be undertaken by these businesses. These recommendations are explained under:
- Policies and conditions are put into place within the regulation of Central bank in order to control accessibility and movement of domestic currency
- It is also recommended that the companies must ensilage investment within the local industries along with quality products in order to improve product export
- Encouragement of payment in local currency is recommended for the goods and services of these companies in which there is a requirement to pay in the future date as this is observed in the case in agreements and contracts
- Conducting further research is recommended to the two businesses through conducting comparative evaluation with the current practice at the mining and consumer goods industry
4. Conclusions
The objective of this paper was to investigate the social, business and economic issues associated with fluctuating Australian dollar along with analyzing the Australian dollar trends over three years. It was gathered from the paper that exchange rate fluctuations impacts the associated prices of traded services and goods that increases the competitiveness of international and domestic trade and encourages Australian dollar depreciation. Moreover, it is also evidenced that if such Australian currency movement is not properly managed, the nation might collapse as civilians might not be able to acquire most of the imported goods particularly from developed nations with powerful currencies such as US and Australian dollar.
Conducting further research is recommended to the two businesses through conducting comparative evaluation with the current practice at the mining and consumer goods industry. It is also recommended that the companies must ensilage investment within the local industries along with quality products in order to improve product export.
References
Apergis, N., 2014. Can gold prices forecast the Australian dollar movements?. International Review of Economics & Finance, 29, pp.75-82.
Avdjiev, S., Du, W., Koch, C. and Shin, H.S., 2016. The dollar, bank leverage and the deviation from covered interest parity.
Cavoli, T. and Rajan, R.S., 2014. Intervention and Exchange Rate Regime Choice in Asia: Does the US Dollar Still Matter?(Doctoral dissertation, World Scientific Publishing).
Di Iorio, A. and Faff, R.W., 2015. The effect of intervaling on the foreign exchange exposure of Australian stock returns.
Eickmeier, S. and Ng, T., 2015. How do US credit supply shocks propagate internationally? A GVAR approach. European Economic Review, 74, pp.128-145.
Fabling, R. and Sanderson, L., 2015. Export Performance, Invoice Currency and Heterogeneous Exchange Rate Pass?through. The World Economy, 38(2), pp.315-339.
Ferraro, D., Rogoff, K. and Rossi, B., 2015. Can oil prices forecast exchange rates? An empirical analysis of the relationship between commodity prices and exchange rates. Journal of International Money and Finance, 54, pp.116-141.
Garcia-Fuentes, P.A. and Fukasawa, Y., 2016. The Effect of US Official Reserve Flows on the Japanese Yen-US Dollar Exchange Rate in a Business Cycle. Volume 7 Table of Contents 2016, p.17.
Haque, M.A., Topal, E. and Lilford, E., 2015. Relationship between the gold price and the Australian dollar-US dollar exchange rate. Mineral Economics, 28(1-2), pp.65-78.
Hughen, J.C. and Beyer, S., 2015. Stock returns and the US dollar: the importance of monetary policy. Managerial Finance, 41(10), pp.1046-1058.
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.
Jiang, J. and Gu, R., 2016. Asymmetrical long-run dependence between oil price and US dollar exchange rate—Based on structural oil shocks. Physica A: Statistical Mechanics and its Applications, 456, pp.75-89.
Moosa, I., 2016. Exchange rate forecasting: techniques and applications. Springer.
Nguyen, H.T. and Duncan, A.S., 2017. Exchange rate fluctuations and immigrants’ labour market outcomes: New evidence from Australian household panel data. Journal of International Economics, 105, pp.174-186.
Pierdzioch, C., Risse, M. and Rohloff, S., 2016. Fluctuations of the real exchange rate, real interest rates, and the dynamics of the price of gold in a small open economy. Empirical Economics, 51(4), pp.1481-1499.
Stoši?, D., Stoši?, D., Stoši?, T. and Stanley, H.E., 2015. Multifractal analysis of managed and independent float exchange rates. Physica A: Statistical Mechanics and its Applications, 428, pp.13-18.
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