Demand and Supply Model to AUD/USD Exchange Rate : Report
Added on 2020-07-23
9 Pages2205 Words50 Views
AUSTRALIAN DOLLARTIPPED TO SLIDE BACKTO 70 US CENTS
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................3(a) Demand and Supply model of exchange rate determination and the various factorsinfluencing its fluctuations.....................................................................................................3(b) Analyses of the movement of the AUD in relation to that of the USD...........................4(c) Factors affecting the AUD/USD exchange rate................................................................5(d) Impact of the depreciation of the Australian dollar on an electrical machinery firmengaged in importing..............................................................................................................6(d) Action Reserve Bank of Australia takes in order to bring the exchange rate back to US80C per AUD, and the side effects on the Australian economy. ...........................................7CONCLUSION................................................................................................................................7REFERENCES................................................................................................................................9
INTRODUCTIONThe Australian dollar as compared to the US dollar is shifting to a low grade due to theimbalances in global finances. The AUD is trading low as compared to the USD according to theFederal Reserve which entails the Reserve Bank of Australia (RBA) to reduce its borrowing cost.The currency has appreciated for few weeks as the US dollar slouched due to the increase in theprices of iron ore which have given a boost to Australia’s exports. The broadening interest ratedifferentials between Australia and U.S, has resulted in depreciation of the Australian dollar. TheBloomberg index of US dollar, which measures the currency against a TWI (Trade-WeightedIndex) of others is down by more than 3 per cent in 2018. (a) Demand and Supply model of exchange rate determination and the various factorsinfluencing its fluctuations.The main aim behind this study is to apply demand and supply model to determine theAUD/USD exchange rate and the factors which have impact on it. The demand and supplyanalysis helps to find out whether a currency will appreciate or depreciate against othercurrencies. The exchange rate is termed as the value of one currency expressed in terms ofanother currency (Garnaut and Smith, 2009). In other words, Aussie-Greenback exchange rateimplies how many Australian dollar is spend to buy one US dollar. AUD has a floating rate ofexchange. The AUD has traded against the US dollar in the foreign exchange market as the USdollar is the main international exchange medium.The Trade-Weighted Index on the other hand, is responsible for providing the measuresweather the AUD is falling or rising against the average of other basket of currencies.The various factors which brings fluctuations in the exchange rate of Aussie-Greenback are:Inflation rate: In generic, the inflation rate is the rate at which the price of goods andservice is increasing as compared to the decrease in the purchasing power of a currency.The Australian dollar has jumped above 79 US cents with the US currency remainingweak after US inflation figures came in higher than expected (Morris, 2008).Growth rate: The percentage change of a particular measure in contrast to similarmeasure over a certain time period is termed as change in growth rate. The AUD moves3
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