“c06TheEconomicsOfInternationalTrade_PrintPDF” — 2022/5/31 — 13:29 — page 17 — #17
TABLE 6.4 Some factors that can change the conditions of demand and supply and hence the price of the A$ in the foreign exchange market Three factors that can affect the level of credits or receipts for exports, changing the demand (D) of the A$ and hence the exchange rate
Three factors that can affect the level of debits or payments for imports, changing the supply (S) of the A$ and hence the exchange rate 1. Changes in Australia’s rate of economic growth affects the value of our spending abroad on imports. This alters the S of the A$ and hence the exchange rate.
2. Changes in consumer and business confidence overseas affect sales of Australian exports, and hence the D for the A$ and the exchange rate.
2. Changes in Australia’s consumer and/or business confidence affect spending on imports. This alters the S of the A$ and hence the exchange rate.
3. Changes in the selling price of Australian-made goods and services, perhaps due to higher or lower production costs or efficiency, alters the international competitiveness or attractiveness to consumers of Australian exports. This affects the D for the A$ and the exchange rate.
3. Changes in the Australian government’s spending on imported defence equipment and in levels of foreign aid, alter the S of the A$ and hence the exchange rate.
G
E
PR
O
O
FS
1. Changes in overseas rates of economic growth (e.g. amongst our trading partners China, USA) affect sales of Australian exports, and hence the D for the A$ and the exchange rate.
D
PA
Depending on whether the exchange rate for the $A rises or falls has a huge impact on the value of Australia’s exports and imports of goods and services (and the trade balance). Figure 6.13 shows recent changes in the value or price of one A$ against the US$, the yen and the euro.
TE
FIGURE 6.13 Recent changes in the value of one A$ when swapped for the US$, the yen and the euro in the foreign exchange market
Australian dollar
CO RR EC
yen
US$, euro
1.60
200
Yen per A$ (LHS)
1.20
150
US$ per A$ (RHS) 0.80
U
N
100
Euro per A$* (RHS)
50
0.40 1987
1994
2001
2008
2015
2022
* ECU per A$ until 31 December 1998. Source: Bloomberg Source: RBA Chart Pack, see https://www.rba.gov.au/chart-pack/exchange-rates.html.
TOPIC 6 The economics of international trade
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