The paper "Australian Currency Valuation" is an engrossing example of coursework on macro and microeconomics. The first reason for the appreciation of the Australian dollar was largely attributed to the growth of the resources sectors namely the mining sector. It increased demand for the dollar due to increased foreign investments that outmatched the exports made by other industries in the country. It provided avenues for reallocation of capital and labor in various industries throughout the country. The author of the paper states that such conditions provided challenges to some industries due to currency value appreciation and a combination of a flexible labor market, stable and low inflation.
Consequently, the high demand for labor in the resources industries did not translate to high demand for increased wages (Battellino, 2010, p. 11). The author argues in a well-organized manner that the RBA responded to currency pressures through combinations of interest rate changes and interventions in the foreign exchange market. The RBA’ s decision towards interest rates reduction was aimed at inducing an increase in exports given they had become relatively costly to foreign customers (Bernanke, Olekalns, & Frank, 2008, p. 27). The second reason for the appreciation of the Australian dollar is attributed to the financial and current account deficits and surpluses.
The trade balances between imports and exports were affected by capital flows in the country. Due to the presence of numerous investment opportunities for foreign investors, there was a high demand for the Australian dollar resulting in sharp appreciation for the currency. The third reason for the appreciation of the Australian dollar was the relative price of products in the country. Cheap Australian products became available to foreign consumers through exports resulting in an increase in the demand for the Australian dollar.
The change in incomes in the country can be attributed to the relative price of the products in the market.
Atkin T, M Caputo, T, Robinson & Wang, H 2014, ‘Macroeconomic Consequences of Terms of Trade Episodes, Past and Present’, RBA Research Discussion Paper, No 2014-01.
Battellino, R, 2010, ‘Mining Booms and the Australian Economy’, RBA Bulletin, March, pp 63–69.
Bernanke, B.S., Olekalns, N. & Frank, R.H., 2008, Principles of Macroeconomics, (2nd ed.) McGraw-Hill Australia, Sydney.
Laïdi, A 2009, Currency trading and inter-market analysis: How to profit from the shifting currents in global markets, Hoboken, N.J: John Wiley & Sons.
Plumb M, Kent C & Bishop, J, 2013, ‘Implications for the Australian Economy of Strong Growth in Asia’, RBA Research Discussion Paper, No 2013-03.
Sarno, L & Taylor, M 2002, The Economics of Exchange Rates, Cambridge, Cambridge University Press.
Stevens, G, 2011, ‘The Resources Boom’, RBA Bulletin, March, pp 67–71
Twomey, B, 2012, Inside the currency market: Mechanics, valuation, and strategies, Hoboken, N.J: Bloomberg Press.
Whaley, R. E, 2006, Derivatives: Markets, valuation, and risk management, Hoboken, N.J: Wiley.