Financial Markets Report: AUD/USD Exchange Rate Factors and Forecast

This report provides an analysis of the AUD/USD exchange rate, examining the key macroeconomic and political factors that influence its movement. The report delves into the impact of interest rates, inflation, GDP growth, political scenarios, and commodity prices on the currency pair. It presents historical data, analyzes the current economic landscape, and forecasts the future direction of the exchange rate, considering factors such as interest rate differentials, inflation rates, and the impact of global events like trade wars and commodity price fluctuations. The report concludes with recommendations based on the analysis, suggesting a depreciation of the AUD/USD currency pair in the short term due to increasing inflation and interest rate differentials, along with slower GDP growth and rising commodity prices.

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Table of Contents
Introduction......................................................................................................................................2
Discussion........................................................................................................................................2
Factors Affecting Exchange Rate................................................................................................2
Conclusion and Recommendations..................................................................................................4
References........................................................................................................................................5

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Introduction
Exchange rate prevailing in the economy says well about the economies in terms of the
performance, level of business activities carried and the associated risk levels prevailing in the
economy with respect to macro-economic factors. The exchange rate that has been taken into
consideration for the purpose of analysis is the AUD/USD Exchange rate for a set of two-year
where relevant changes in the exchange rate will be taken into consideration (In2013dollars.com
2019).
Discussion
Factors Affecting Exchange Rate
The key macro-economic factors affecting the exchange rate in the economy can be
primarily in the field of changes in the interest rate, inflation level, and term of trade, political
stability and economic performance. The data period analyzed for the currency exchange rate
shows that the pair of currency exchange rate has generated a return of -0.44% and at the same
time the associated level of risk with the currency pair has been around 2.16% (Nytimes.com
2019). The negative return can be well related to the changing economic scenario and political
instability events like trade war, changing government rules and regulations that has occurred
and rising oil prices which has predominately affected the movement or volatility in the
exchange rate (Investing.com, 2019).
Interest Rate: The interest rate in the Australia has been predominately low in the Australian
region that is around 1.50% and the interest rate in the US has been around 2.40% currently
(Media 2019). The level of interest rate has been very low in the Australian economy where

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investors and traders would be borrowing money from the AUD Currency and investing the
proceeds in the USD currency making the currency to fall in the trend period.
Prevailing Rate of Interest Rate in US and Australia
(Source: Media 2019)
Inflation Rate: The inflation rate in the US has been around 1.8% and at the same time in
Australia the same has been around 1.9% stating that there have been no marginal changes in the
inflation rate between the two economies (US Inflation Calculator 2008). It is forecasted that the
exchange rate in the coming year will be a bit high for the Australian Region where the same is
forecasted to be around 2.1% and for the US Exchange rate the same would be around 1.9%
(Reserve Bank of Australia 2019). As per the forecasted increase in the inflation rate the AUD
Currency is expected to depreciate in the time period analyzed, that is around 3-6 month of time
frame and the same would be well contributed to the changes in the key macro-economic factors
like inflation rate, interest rate and changes in the business cycle.
GDP Growth Rate: The growth rate in GDP for the Australian Economy has been 0.3% and it
is forecasted that the same would be around 0.7% (Data.worldbank.org 2019). On the other hand,
the growth rate in GDP for the United States has been around 3.1% and the same is forecasted to

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be about 3.2% for the economy (Bea.gov 2019). The growth rate of GDP in US is considerably
higher in the US region than in the Australian Region making the trading and economic activity
for the economy to be much higher. The USD is set to be appreciating in the trend period
analyzed and AUD on the other hand would not be appreciating to a level as USD would be
moving up.
Political Scenario and Commodity Prices: The political scenario has been quite volatile in the
global economy and the same has been primarily due to the ongoing Trade War and rising
Commodity (Oil) prices. It is ascertained that the same would be affecting the AUD/USD
exchange rate in the near trend period that is in the three to six month of time frame.
Conclusion and Recommendations
The exchange rate for the AUD/USD determined or undertaken has been primarily
affected due to a number of factors and the same has been primarily due to the changes in the
various macro-economic and political factors. The associated factors have affected the exchange
rate where in the near term future say in three to six month of time frame the exchange currency
pair is set to be depreciating because of the increasing inflation and the interest rate differential
prevailing. Other key factors like the ongoing trade war, slower growth rate in GDP along with
rising commodity prices are set to degrade or lower down the value of the currency pair.

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References
Bea.gov. 2019. U.S. Economy at a Glance | U.S. Bureau of Economic Analysis (BEA). [online]
Available at: https://www.bea.gov/news/glance [Accessed 11 Sep. 2019].
Data.worldbank.org. 2019. GDP growth (annual %) | Data. [online] Available at:
https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?locations=AU [Accessed 11 Sep.
2019].
Reserve Bank of Australia. 2019. Measures of Consumer Price Inflation. [online] Available at:
https://www.rba.gov.au/inflation/measures-cpi.html [Accessed 11 Sep. 2019].
US Inflation Calculator. 2008. Current US Inflation Rates: 2009-2019. [online] Available at:
https://www.usinflationcalculator.com/inflation/current-inflation-rates/ [Accessed 11 Sep. 2019].
Nytimes.com. 2019. Why the Federal Reserve Cut Interest Rates. [online] Available at:
https://www.nytimes.com/interactive/2019/07/31/business/economy/federal-reserve-interest-
rates.html [Accessed 11 Sep. 2019].
Media, T. 2019. Federal funds rate FED - American central bank’s current and historic interest
rates. [online] Global-rates.com. Available at:
https://www.global-rates.com/interest-rates/central-banks/central-bank-america/fed-interest-
rate.aspx [Accessed 11 Sep. 2019].
In2013dollars.com. 2019. Inflation Rate in 2019 | Australia Inflation Calculator. [online]
Available at: http://www.in2013dollars.com/Australia-inflation-rate-in-2019 [Accessed 8 Sep.
2019].

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Investing.com. 2019. AUD USD Historical Data - Investing.com. [online] Available at:
https://in.investing.com/currencies/aud-usd-historical-data [Accessed 8 Sep. 2019].