Evaluation of the Sudden Drop in the Value of Australian Dollar

ECONOMICS FOR
PROFESSIONAL
(AUSTRALIAN DOLLAR
TRUMBLES TO TEN YEAR LOW)

EXECUTIVE SUMMARY
The sudden drop in the value of An Australian dollar is evaluated with the help of this
assignment to get to know about all the reasons behind the uncertain decrease in the value.
The reasons come in the bigger picture that weaker growth of the industry’s output from
China and the European Union are behind the sudden decrease in the value of an Australian
dollar. The article published in the Sydney morning herald draw light on this topic. The
authenticity of the information mentions in the article will help with further research. With
the help of this research, RBI of Australia is suggested to improve the value of an Australian
dollar.
2

TABLE OF CONTENTS
ASSIGNMENT 1.......................................................................................................................1
1. Discuss issues discussed in the article and explain how AUD and USD exchange rates
are determined by market forces using demand and supply model of exchange rates...........1
2. Analyse movement in AUD-USD exchange rates and describe factors contributing to the
behaviour of exchange rates...................................................................................................2
3. Summarize driving factors behind the movement of AUD in the article and explain how
these factors affect the demand or supply of AUD-USD market...........................................6
4. Explain the impact of recent drop in AUD on the business and describe how depreciation
of AUD will affect the entire Australian economy................................................................7
5. What actions reserve bank of Australia could take to increase the AUD from 70C per
AUD to 73C per AUD and its side effects that might affect Australian economy................8
REFERENCES...........................................................................................................................9
APPENDICES..........................................................................................................................11

INTRODUCTION
Current report is about the evaluation of an article on different criteria’s used in the
assignment to tests the authenticity of the information mention in the article. Sudden decrease
in the Australian dollar has witnessed which decline to 70C per Australian dollar which is
consider as the lowest value in a period of 1 decade (Cuestas & Gil-Alana, 2009). The whole
world is shocked that how this much decrease has witnessed by the Australian economy. This
report will stresses on several aspects such as determination of exchange rates by market
forces, factors contributing to its impact on the Australian economy.
ASSIGNMENT 1
1. Discuss issues discussed in the article and explain how AUD and USD exchange rates are
determined by market forces using demand and supply model of exchange rates.
The prominent reason behind this sudden decline is weaker production of
manufacturing industries set up in China and the European Union (Australian dollar tumbles
to ten-year low, 2019). Australia’s revenue comes from these two important sources which
help in increasing the global growth of the nation (Ramsay & Leslie, 2008). But sudden
decreasing of revenue from this source affects the entire economy due to which the currency
value of the Australian dollar faces decline.
A Drop in the growth of industries in China and the European Union covering two
major countries in this region such as Spain and Italy (Valadkhani & Smyth, 2018).
Uncertainty imposed on the Australian economy will result into a declining value of its own
currency. This will, in turn, affects the entire market demand of Australia’s output to sell in
the foreign market.
But due to this drop in the currency value of the Australian dollar, the value of the
Euro gets increases as the value of the Euro gets increases. As this tragedy, opens up a new
path for Eurozone manufacturing industries in comparison to the Australian dollar
manufacturing region (Ramsay, Richman & Leslie, 2017).
The demand for the supply model helps an economy in estimating the exchange rate
of the future period by knowing its future demand and the supply (Bahmani‐Oskooee &
Nayeri, 2018). This model will help in identifying two exchange rates of two currencies such
as the Australian Dollar and US dollar.
1