Applied Business Research: Analyzing Australian Dollar and Its Effects

This applied business research report analyzes the impact of Australian dollar fluctuations on the Australian economy and various industries. The research investigates the effects of AUD movements on the mining and manufacturing sectors, exploring how changes in the exchange rate influence exports, imports, and overall business performance. The report examines the key factors affecting the Australian dollar's value, including global growth, interest rate differentials, and commodity prices. It highlights the issues faced by businesses due to currency fluctuations, such as changes in demand and competitiveness, and assesses the potential social and economic consequences. The study includes research questions, objectives, hypotheses, and ethical considerations, providing recommendations for businesses to mitigate risks associated with currency movements. The report concludes by emphasizing the significance of the Australian dollar in determining Australia's trade balance and its broader economic implications, offering valuable insights into the dynamic relationship between currency fluctuations and business operations.

Running head: APPLIED BUSINESS RESEARCH
Applied business research
Name of the student:
Name of the University:
Author note:

1APPLIED BUSINESS RESEARCH
Executive summary:
The research study deals with the movement in the Australian dollar and its impact on the social
and economic conditions of the country. The research study includes the research questions,
objectives and aims along with the hypothesis. The rate of exchange directly affects the economy
of a country through the changes in the demand for import and exports. The Australian dollar
plays a vital role in the economic and financial system of the country. The exporters, importers,
domestic investors and the foreign investors are highly affected by the fluctuations in the price of
Australian dollar. Manufacturers have been the most responsive to the changes in the value of
Australian dollar however; their empirical relationships have weakened lately. The mining
industry and the manufacturing concerns are the most affected with the movement in the
Australian dollar.

2APPLIED BUSINESS RESEARCH
Table of Contents
Introduction......................................................................................................................................3
Background......................................................................................................................................3
Aim..................................................................................................................................................4
Groups affected by dollar movement..............................................................................................4
Issues affecting businesses that are impacted by the dollar movement...........................................5
Symptoms of the businesses............................................................................................................5
Decision statement:..........................................................................................................................6
Research objectives:........................................................................................................................6
Hypothesis.......................................................................................................................................6
Research questions:.........................................................................................................................6
Ethical issues:..................................................................................................................................6
Recommended research for the businesses......................................................................................6
Conclusion.......................................................................................................................................7
Recommendations............................................................................................................................7
References........................................................................................................................................8

3APPLIED BUSINESS RESEARCH
Introduction:
Over the past few decades, the economy of Australia has witnessed several fluctuations in
its dollar rate. The changes in the rate of dollar causes changes in the prices of local and foreign
products and services, which further leads to the changes in inflation rate and interest rates. The
changes in the exchange rate affects the industries, which are dependent upon the exchange rates
and results in the expansion of few industries while contraction of the others. The Australian
dollar plays a vital role in the economic and financial system of the country. The exporters,
importers, domestic investors and the foreign investors are highly affected by the fluctuations in
the price of Australian dollar (Cavoli and Rajan 2014).
Background:
The level of demand for a currency determines its market price. When there are more
buyers of Australian dollar, its value shall go up whereas; when there are more people wanting to
sell Australian dollar, its value shall go down. The buying and selling decision of the individuals
are affected by their outlook for global growth, difference between interest rates in Australia and
US, performance of the Asian currencies and the changes in the commodity export prices in
Australia (Ferraro, Rogoff and Rossi 2015). The following are the key findings:
 The rate of exchange directly affects the economy of a country through the changes in the
demand for import and exports. Fall in the value of domestic currency results in more
competitive exports in the international market while rise in the value of domestic
currency results in more competitive imports domestically. Fall in the value of domestic
currency makes the goods and services produced within the country cheaper than the
foreign production, which provides greater benefits to the industries having high export
share.
 In Australia, the mining, transport and the manufacturing industries hold the maximum
export share whereas; the construction, education, health and business services industries
are the least exposed to exports.
 Fall in the value of Australian dollar increases the cost of goods and services imported
from other countries, which in turn raises the overall costs (Apergis 2014).
 The difference in the interest rates of the Reserve Bank of Australia and the Federal
Reserve affects the value of Australian dollar and US dollar.
 The value of Australian dollar is highly dependent upon the commodity prices as
Australia is the largest exporter of coal and iron ore.

4APPLIED BUSINESS RESEARCH
Figure 1: Relation between AUD and USD
(Source: Bussière, Delle Chiaie and Peltonen 2014)
Aim:
The aim of the research is to analyze the economic, social and business issues related
with the fluctuation in the Australian dollar. The research aims at finding the trends of Australian
dollar in the past three years and its social and economic impact on Australia.
Groups affected by dollar movement:

5APPLIED BUSINESS RESEARCH
The people mainly affected by the movement in the dollar are the importers, exporters,
manufacturers and the mining industry. The movement in the Australian dollar highly affects the
number of imports and exports. For instance, when the value of Australian dollar falls, the goods
and services available within the country becomes cheaper, this results in the reduction the
number of exports and also boosts the domestic industries. On the other hand, when the value of
Australian dollar rises, importing the foreign products and services becomes cheaper; this
increases the number of imports (Lustig, Roussanov and Verdelhan 2014).
Issues affecting businesses that are impacted by the dollar movement:
The major issues affecting mining industry in Australia due to movement in dollar is the
change in the demand for coal and iron ore. Since Australia is the largest exporter of coal and
iron ore in the world, the changes in the valuation of Australian dollar with respect to US dollar
largely affects the exporters. Rise in the value of domestic currency makes the goods and
services produced within the country costlier than the foreign production, which provides greater
losses to the industries having high export share (Ilzetzki, Reinhart and Rogoff 2017). The
mining industry has the largest export share in Australia therefore; it faces severe issues when
there is any movement in the Australian dollar.
Another industry that faces issues due to the movement of Australian dollar is the
manufacturing industry. The manufacturers of export items are highly affected by the changes in
the value of Australian dollar. This is because when the Australian dollar becomes stronger, the
demand for the export items falls as a result of higher prices. The foreign countries have to spend
more money to buy the exported items and many a times they find suppliers of the same products
in some other country where the products are available at cheaper rates. Therefore, the rise in the
Australian dollar renders manufacturers as the ultimate losers. However, despite the depreciation
in the Australian dollar, the volumes of manufactured exports have been stable since the year
2012 (Reboredo and Rivera-Castro 2014). The Australian manufacturers have been facing
intense competition from the industrial development in the lower- cost nations especially China.
Several manufacturers have also faced issues with their capacity to change production as a result
of the delays in their supply chain.
Symptoms of the businesses:
In case of the mining industry, the movement in the Australian dollar largely affects the
export quantity and export prices of the coal and iron ores. The economy of the country is highly
dependent upon the export of coal and iron ores (Haque, Topal and Lilford 2015). Any
disturbances in the value of Australian dollar shall have huge social and economical impact on
the country. A large number of people are involved in the mining industry and any loss in this
industry shall affect the workers to a large extent. Similarly, in case of manufacturing concerns, a
large number of manufacturers are dependent upon exports for generating their revenues. Any
change in the value of Australian dollar affects their business and the amount of revenue
generated (Di Iorio and Faff 2015). When the Australian dollar becomes stronger, the demand
for the export items falls as a result of higher prices. This lowers the demand for exports and
creates trade imbalances. Severe conditions might compel the manufacturing concerns to shut
their operation. This shall affect the lives of the people employed in those units and shall
adversely affect the GDP of the country. This shall not only harm the economy of the country but
shall also affect the society on a whole (Shu, He and Cheng 2015).

6APPLIED BUSINESS RESEARCH
Decision statement:
The movement of Australian dollar shall affect all the industries to some extent and shall
ultimately affect the exports and imports of the country, which shall ultimately have social and
economic impacts on the country.
Research objectives:
The following are the research objectives:
 To analyze the impact of the movement of Australian dollar on the mining industry in
Australia
 To analyze the impact of the movement of Australian dollar on the manufacturing
businesses in Australia.
 To evaluate the impact of mining and manufacturing businesses on the economy of
Australia due to the movement in Australian dollar
 To understand social and economic impacts of these businesses in Australia.
Hypothesis:
H0: There is no impact of movement of Australian dollar on industries in Australia
H1: The movement in the Australian dollar affects the mining industry in Australia
H2: The movement in the Australian dollar affects the export related manufacturing concerns in
Australia
Research questions:
The following are the research questions:
 What is the impact of the movement of Australian dollar on the mining industry in
Australia?
 What is the impact of the movement of Australian dollar on the manufacturing businesses
in Australia?
 What is the impact of mining and manufacturing businesses on the economy of Australia
due to the movement in Australian dollar?
 What are the social and economic impacts of these businesses in Australia?
Ethical issues:
It is mandatory to keep into consideration the ethical issues while conducting a research.
It verifies the authenticity of the research and ensures that the research contains genuine
information. In this research study, the data has been collected from secondary sources such as
newspaper, articles, books and authentic websites. The data has been collected to be used only
for commercial purpose. The information has been kept confidential and appropriate referencing
has been provided to make the research study look more reliable and genuine (Manalo, Perera
and Rees 2015).
Recommended research for the businesses:

7APPLIED BUSINESS RESEARCH
The businesses must research about the currency movements of the competing countries
so that they can identify the level of competitiveness and devise suitable strategies for remaining
ahead of the competitors. The companies must also study the movement of Australian dollar in
the past ten years and the impact it had on their business or similar businesses and the manner in
which the other businesses faced the situation. This shall help them to identify the possible
strengths, weaknesses, opportunities and threats in the external environment (Downes, Hanslow
and Tulip 2014).
Conclusion:
In this research study, the impacts of exchange rates have been analyzed and the
industries that are highly affected by these changes have been identified. The movement of
Australian dollar is an important determinant of the exports and imports taking place in
Australia. Several reports have stated that 10% of depreciation in the value of Australian dollar
results in the overall increase of exports by 3% and overall decrease in the imports by 4%
(Garnaut, Baxter and Frueger 2017). This has the capability of increasing the GDP of the country
by 1.5% over two years while maintaining the trade shares at present levels. The rate of
exchange directly affects the economy of a country through the changes in the demand for
import and exports. Fall in the value of domestic currency results in more competitive exports in
the international market while rise in the value of domestic currency results in more competitive
imports domestically. Fall in the value of domestic currency makes the goods and services
produced within the country cheaper than the foreign production, which provides greater benefits
to the industries having high export share (Moosa 2016). Manufacturers have been the most
responsive to the changes in the value of Australian dollar however; their empirical relationships
have weakened lately. The mining industry and the manufacturing concerns are the most affected
with the movement in the Australian dollar. The strength of the Australian dollar depicts the
weakness of US dollar and it also represents the level of commodity prices in Australia. Strong
Australian dollar is a result of high interest rates and the preparedness of global investors to take
on ‘risk’ in order to enhance returns in a very low-interest rate environment. A stronger
Australian dollar means that the products and services priced in the domestic currency are
costlier when converted into US currency, which refrains the importers in the foreign countries
to import products from Australia. This compels the Australian exporters to cut their prices. This
results in narrower profit margins and even losses in some cases (Coudert, Couharde and Mignon
2015).
Recommendations:
It is recommended that the Australian manufacturers must increase the volume of their
exports when the Australian dollar is weak so that they can earn the maximum profits and
revenues to support their businesses in times when the Australian dollar is stronger. The mining
industry must also aim at maximizing the export of coal and iron ores during the period when the
Australian dollar is weak so that they can obtain the maximum benefits. This shall help in
maintaining the GDP of the country without severely affecting the nation.

8APPLIED BUSINESS RESEARCH
References:
Apergis, N., 2014. Can gold prices forecast the Australian dollar movements?. International
Review of Economics & Finance, 29, pp.75-82.
Bussière, M., Delle Chiaie, S. and Peltonen, T.A., 2014. Exchange rate pass-through in the
global economy: the role of emerging market economies. IMF Economic Review, 62(1), pp.146-
178.
Cavoli, T. and Rajan, R.S., 2014. Intervention and Exchange Rate Regime Choice in Asia: Does
the US Dollar Still Matter? (Doctoral dissertation, World Scientific Publishing).
Coudert, V., Couharde, C. and Mignon, V., 2015. On the impact of volatility on the real
exchange rate–terms of trade nexus: Revisiting commodity currencies. Journal of International
Money and Finance, 58, pp.110-127.
Di Iorio, A. and Faff, R.W., 2015. The effect of intervaling on the foreign exchange exposure of
Australian stock returns.
Downes, P.M., Hanslow, K. and Tulip, P., 2014. The effect of the mining boom on the
Australian economy.
Ferraro, D., Rogoff, K. and Rossi, B., 2015. Can oil prices forecast exchange rates? An empirical
analysis of the relationship between commodity prices and exchange rates. Journal of
International Money and Finance, 54, pp.116-141.
Garnaut, R., Baxter, P. and Frueger, A.O., 2017. Exchange rate and macro-economic policy in
independent Papua New Guinea. Canberra, ACT: Development Studies Centre, Research School
of Pacfic Studies, The Australian National University..
Haque, M.A., Topal, E. and Lilford, E., 2015. Relationship between the gold price and the
Australian dollar-US dollar exchange rate. Mineral Economics, 28(1-2), pp.65-78.
Ilzetzki, E., Reinhart, C.M. and Rogoff, K.S., 2017. Exchange Arrangements Entering the 21st
Century: Which Anchor Will Hold? (No. w23134). National Bureau of Economic Research.
Lustig, H., Roussanov, N. and Verdelhan, A., 2014. Countercyclical currency risk
premia. Journal of Financial Economics, 111(3), pp.527-553.
Manalo, J., Perera, D. and Rees, D.M., 2015. Exchange rate movements and the Australian
economy. Economic Modelling, 47, pp.53-62.
Moosa, I., 2016. Exchange rate forecasting: techniques and applications. Springer.
Reboredo, J.C. and Rivera-Castro, M.A., 2014. Can gold hedge and preserve value when the US
dollar depreciates?. Economic Modelling, 39, pp.168-173.
Shu, C., He, D. and Cheng, X., 2015. One currency, two markets: the renminbi's growing
influence in Asia-Pacific. China Economic Review, 33, pp.163-178.