How Do Exchange Rates Affect Australian Economy

Exchange rates play a vital role in Australia’s economic performance. Becoming of high importance to the Australian government, affecting the imports and exports for the economy. The exchange rate is the price of one currency expressed in terms of another currency and is highly dependent on policies such as the monetary and how certain economic factors determine whether an economy has a higher or lower exchange rate. Trends in exchange rates over the past year have shown clear correlations between the rise in mining commodities as well as the annual GDP growth rate. As specific economic policies are needed to improve economic outcomes of Australia’s external sector. Such as a strong monetary policy to help domestically and internationally is

Due to recently Australia’s dollar has exceeding above 0.80$ (Appendix 1) a peak not seen for two years. From BHP and Rio tinto’s mining company’s shares rising and the demand for raw commodities of iron ore and coal up 10-15% respectively (ABC, 2017). As both large commodity exporters movements will often impact the Australian exchange rate especially over the short term. Corroborating with the GDP growth rate rising again after the negative quarter mid-to-late 2016 to rising back up in the previous quarters (Appendix 2). From this trends are impacting the Australian economy greatly, as the stronger dollar benefitting those travelling overseas and buying items from off-shore allowing them to get cheaper rates from the USD. However “for manufacturer’s, a rising dollar is a double-edged sword” (ABC, 2017) as among the 70-80cents band, in contrast to the US dollar 80% of manufacturer's say they are competitive but between 80-90cents only 38% are. As well as the RBA not happy with the rising dollar due to the previous depreciating dollar assisting with the mining investment boom, now companies are not reinvesting and lifting due to uncertainty about the sustainability of the