Report on AUD/USD Exchange Rate Dynamics and Future Predictions

This report provides an in-depth analysis of the AUD/USD exchange rate, examining its movements over the past month and identifying key factors that influence its valuation. The analysis considers inflation rates, interest rates, current account balances, government debt, terms of trade, political stability, recessionary impacts, and speculative trading. The report highlights the recent appreciation of the AUD against the USD and notes the volatility in the exchange rate. Based on interest rate parity and the current trade war between China and the USA, the report forecasts a strengthening of the AUD relative to the USD in the future. The report concludes by referencing various sources to support the analysis and predictions.

Exchange Rate Movement of AUD against USD or USD against AUD
Introduction
AUD is currency of Australia and USD belongs to one of the Superpowers i.e. United States of
America. The currency is one of the strongest currency in the world and is considered as hard
currency and accepted pan globe for trade and business purpose. Further, the currency is highly
liquid and is favourite among dealers. Further, the current rate of USD to AUD is 0.7 implying that
USD is stronger to AUD. (27-04-2019)
Last Month Trend
During the last month, AUD has seen a large appreciation against the USD symbolising the comeback
of the currency. The movement in the currency against the AUD has been quite volatile during the
period with sharp downfall witnessed near the end of the month. The month has seen a peak of .718
to a low of 0.699. (TransferWise Ltd , 2019)The graph has been presented here-in-below depicting
the movement of the AUD against USD:
Factors impacting the movement of Currency
The following are the factors that impact the movement of currency:
(a) Inflation Rate in the economy : The most critical factor impacting the movement of currency in
the economy encompass the rate of inflation prevailing the economy. The current rate of
inflation prevailing in USA is 1.9% and the rate of inflation in AUD is 1.3% in the first quarter of
2019. (Trading Economics, 2019)

(b) Interest Rate prevailing in the economy: The second most critical factor impacting the
exchange rate prevailing is the rate of interest on the economy. The country with a higher rate
of interest sees a falling currency in future with forward trading at a discount. Further, with
currency witnessing a lower rate of interest rate prevailing in the economy witness a forward
premium currency. The current rate of interest in the Australian economy is 1.5% (cash rate)
(Trading Economics, 2019) and USA of 2.25%-2.5% (BBC, 2019)
(c) Country’s Current Account Balance and Balance of Payment: The balance of payment has a
string impact on the currency valuation. For countries with a strong Balance of payment
position with more export than import, the currency shall appreciate. Also, the country with a
deficit current account position shall experience a downfall. The current Balance of payment
position of Australia is deficit and same is the position for United States. However, the economy
of United States has a greater deficit.
(d) Government Debt: Higher government debt shall result in lower borrowing capacity of the
government which shall result in depreciation of currency as the demand for the domestic
currency falls and foreign currency increases on account of loan taken in foreign currency. In
the present case, the US Government has a huge amount of debt while the Australian
government debt level is low compared to its Gross Domestic Product. (Trading Economics,
2019)
(e) Terms of Trade: The terms of trade also play a critical factor in determining the movement of
currency. The rate of increase in export prices and the increase in import price shall also assist
in determining the flow of exchange rate.
(f) Political Stability and Performance: Both the countries i.e. Australia and United States of
America experience a stable and strong government. Further, both the government
performance is quite alleviating and energising during the past years. Thus, on these front both
the economies have fared well.
(g) Recession: The economy of America has witnessed a recession in 2008 which lead to fall in the
value of currency and recover later. The same was witnessed by the economy of Australia,
however, the impact was not so strong. Further, both the economies are performing well right
now and signs of economies are not there. Thus, currency shall not be impacted by the same.
(h) Speculation: The last important factor that shall impact the movement is speculative trading on
the currency. Since US dollar is a hard currency, the speculative trading done is very high
compared to AUD. Further, the demand for USD is always higher compared to AUD. Thus, the
currency shall rise.
Future Forecasting
Assuming Interest Rate Parity holds good, the interest rate shall be a driving factor for the exchange
rate. Since in the present case the interest rate is high in United States of America, it is expected that
the AUD shall become stronger compared to USD.

Further, the recent trade war between china and USA shall lead to fall in the value of currency of
USD and the AUD shall rise.
Thus, it is viewed that AUD shall rise and USD shall fall based on reason listed above.
References
BBC, 2019. Slower US growth means no rate rise for 2019, says Fed. [Online]
Available at: https://www.bbc.com/news/business-47644267
[Accessed 27 April 2019].
Trading Economics, 2019. Australia Government Debt to GDP. [Online]
Available at: https://tradingeconomics.com/australia/government-debt-to-gdp
[Accessed 27 April 2019].
Trading Economics, 2019. Australia Interest Rate. [Online]
Available at: https://tradingeconomics.com/australia/interest-rate
[Accessed 27 April 2019].
Trading Economics, 2019. United States Inflation Rate. [Online]
Available at: https://tradingeconomics.com/united-states/inflation-cpi
[Accessed 27 April 2019].
TransferWise Ltd , 2019. USD to AUD. [Online]
Available at: https://transferwise.com/in/currency-converter/usd-to-aud-rate
[Accessed 27 April 2019].