The article under study tries to explain the issues linked to the AUD where it seems to be gaining strength in the market, but at the same time still falling in value very often. The Federal Reserve choice to put the loan costs on hold at this esteem was to reinforce the war coinage since the most examiners in the share trading system have sold off the US dollars and wound up moving these into monetary forms that yield higher returns, for example, the pounds and the euros. They do this operation as a method for making more benefit on the intrigue. Moving forward, it is entirely clear that the senator would address the overall population in Australia on matters concerning the real condition of the economy. The primary part of his discourse would be founded on the methods for enhancing the economy by just focusing on the lodging market. The original hypothesis depends on the main execution and addresses made the representative on such unpredictable monetary circumstances in the nation.
Determination of AUD in the Forex Market
The Reserve Bank of Australia has placed a framework in the position to help predict the trends in the AUD exchange rates as based on the performance of other currencies across the globe. The model by the bank shows that the mere fact could explain last movements in the AUD that there has been some form of changes in the trade pattern in the Australian market. The relationship could also be placed on a relativity ratio to the closeness to the commodity prices in the country. Indeed, based on the previous experience during the time of the floating exchange rates and the model, the AUD was expected to rise in the year 2000, but at the end of all this, the AUD fell in its value in the stock exchange market. The gap between the expected range and the actual range in the exchange was largest for the past 15 years.
The economic theory mixed with the past experiences pointed out at the favorable conditions for the AUD. During the year 2000, there has been continued growth in the economy of the world. The increase in the global economy led to the improvement in the process of the commodities, relatively low inflation, elevated interest rates, fiscal surplus, current account deficit, and continued growth in the economy of the country. As a matter of economic concern, all these factors are considered as the chief promoters of a stronger AUD.
Other factors have also been introduced as a means to help calculate and determine the rate of AUD exchange in the market. These factors were introduced with the new terms of new economy and the old economy. These two terms were coined as a way of helping attain the best and accurate market determinations in the foreign exchange market. The new technology is believed to the technology brought in by industries as the primary source of wealth and income shortly. On the other hand, the old economy refers to the traditional industries. This traditional industry then labeled Australia as the old economy. It was not based on the fact that Australia never used the new technology, but it was rather pegged on the fact that it lacked its technology industries in the market share across the globe. Australia indeed was one of the primary users of the per capita theory in the world.
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Factors Affecting the Behavior in AUD
There are several factors linked to the exchange rate of the AUD. The inflation rate in the country is a major issue in the determination of the exchange rate based on both the domestic and the global performance. The change in the inflation rate of Australia would certainly lead to the change in the value of the AUD. Depreciation in the AUD would occur once the country experiences extreme inflation rates. This high inflation rates in the country are always linked to the increased rates of the interests. In cases where there is an appreciation in AUD, the country must be experiencing low inflation because of the increased prices of the commodities, but at a very slow pace. At the current market, Australia has an inflation rate of 1.5 %.
Another factor is the interest rates dictated by the Reserve Bank of Australia. The interest rates influence the investor and the customer behavior. The issue then affects the borrowing behavior of the customers. Once the economy in Australia is heated up, the Reserve Bank would raise the interest rates as a way to make the process of borrowing more costly, and this then calls for the slowing down of the inflation rate in Australia. Based on the investor behavior, the interest rates would influence the balance between the investors safety on the funds and the yield on returns. The yields for assets in Australia would go up in the case of the increase in the interest rates. The increase in the property yields leads to high demand by the original investors, and this would eventually result in the appreciation of the AUD. Finally, there is the aspect of the trade balance. Based on the Australian exchange rates from the 70s right through to the 80s, the AUD tended to be under pressure by the trade balance and the terms of trade. The balance of commerce in Australia is the difference between the exports and the imports. It influences the demand and supply of the AUD on a global scale. In the case when Australia has a trade surplus that is the positive balance of trade, the demand for its AUD would be higher based on the fact that the foreign customers are obliged to exchange their domestic currencies to be in a position to buy the goods in Australia. On the contrary, a trade deficit otherwise called the negative trade balance would lead to the real devaluation of the AUD.
The fall of AUD in 2016
The financial hypothesis blended with the past encounters brought up at the excellent conditions for the AUD. Amid the year 2000, there has been proceeded with development in the economy of the world. The development of the worldwide economy prompted the change during the time spent the wares, generally small expansion, raised financing costs, financial excess, current record shortfall, and a proceeded with development in the economy of the nation. As an issue of economic concern, every one of these variables is considered as the primary promoters of a more grounded AUD.
Different components have likewise been acquainted as methods with computing and decide the rate of AUD trade in the market. These elements were presented with the new terms of new economy and the old economy. These two terms were authored as a method for achieving the best and accurate market judgments in the outside trade showcase. The innovation is accepted to the innovation acquired by businesses as the fundamental wellspring of riches and salary soon. Then again, the old economy alludes to the customary ventures. This then marked Australia as the old economy. It was not taking into account the way that Australia never utilized the new innovation. However, it was somewhat pegged on the way that it did not have its innovation businesses in the piece of the overall industry over the globe. Australia to be sure was one of the important clients of the per capita hypothesis on the planet.
Australia in Maintaining the Exchange Rate at US 70C
From the data obtained in the article, it is quite clear that the AUD may fall below the current mark based on the market situation especially during this period of market slump in the Australian economy. It is just recently that the Reverse Bank of Australia released their minutes regarding the decisions made on the interest rates in the month of September. The bank seems to suggest some changes involving the cuts that could occur to devalue the AUD. The biggest problem with the entire issue lies with the interest rates reduced and this could make problem with the housing bubble in the country even to escalate to higher levels than it was imagined. The scenario would be created based on the fact that several people would be enticed to purchase more properties in Australia since the interest rates are extremely low. In brief, these people could get larger mortgages.
On the other hand, the Federal Reserve has at the same time decided to keep the interest rates specifically on hold at about 0.6 %. The Federal Reserve decision to place the interest rates on hold at this value was to help strengthen the commodity currencies since the most speculators in the stock market have sold off the US dollars and ended up transferring these into currencies that yield higher returns such as the pounds and the euros. They carry out this operation as a means of making more profit on the interest. Forging ahead, it is quite clear that the governor would address the general public in Australia on matters concerning the actual state of the economy. The central aspect of his speech would be based on the ways of improving the economy by only concentrating on the housing market. The real speculation rests on the first performance and statements made the governor in such volatile economic situations in the country.