why is the $A depreciating? (1 Viewer)

[magik22]

90% of exchange rate movements are caused by speculators. The reason the $A is depreciating is because of the global credit crunch crisis. Australia's FOREX is not safe because we are an economy that is mostly commodities based. Our economy constantly fluctuates and has always been because commodities is considered a 'narrow export base'. Clearly our economy has never been that secure in the eyes of investors - our CAD is blowing out at 6%.

The only reason why speculators invest in our stock market which improves our $A is because our economy fluctuates so much, they try to catch on at the right time.

Now wih the global credit crunch crisis...our economy is even more unstable. People are selling all their shares, it's a time of financial instability, therefore the $A is rapidly dropping like so many other countries around the world.

 

[moll.]

Clearly our economy has never been that secure in the eyes of investors - our CAD is blowing out at 6%.

Actually the CAD's improving, as it often does in times of economic downturn. June quarter figures put the balance on goods and services at a $559m surplus, the first since the downturn in 2000/01. And that's not even taking into account the recent financial troubles of the past few weeks, so i can only think that that number is going to increase over the next year, further reducing our CAD.
10 points to whomsoever that can answer this:
Why is it that Australia's CAD always improves in times of economic downturn?

 

[BackCountrySnow]

Clearly our economy has never been that secure in the eyes of investors - our CAD is blowing out at 6%.

But it has. Our CAD remains high but investors remain confident in the stability of our economy.

 

[seano77]

Why is it that Australia's CAD always improves in times of economic downturn?

I'll give it a shot:

Downturn leads to greater international competitiveness, and since imports become more expensive they are discouraged- leading to an improvement in the balance on goods and services. During a downturn investment on the financial and capital account is reduced, meaning that payments of interest, dividends and profits will not be as high on the net income component. Ok I'm totally rambling. How about during an economic slowdown China's demand for exports does not cease too significantly whilst imports slow, improving the BOGS.

Ok I give up.. whats the answer?

 

[ademayd]

I'll give it a shot:

Downturn leads to greater international competitiveness, and since imports become more expensive they are discouraged- leading to an improvement in the balance on goods and services. During a downturn investment on the financial and capital account is reduced, meaning that payments of interest, dividends and profits will not be as high on the net income component. Ok I'm totally rambling. How about during an economic slowdown China's demand for exports does not cease too significantly whilst imports slow, improving the BOGS.

Ok I give up.. whats the answer?

ts sort of right

swap d first 'Downturn' for depreciatian, (reduced demand for the Au dollar is however caused by a downturn nd reduced demand for d $au, so indirectly still right)

the second sentence is more long term however and usually is negligible, i.e net income component of CAD is very stable. usually the BOGS fluctuates severely...

btw in recent times the question in the first place is flawed, eg in April very positive outlook and there was a surplus in BOGS

 

[ademayd]

Clearly our economy has never been that secure in the eyes of investors - our CAD is blowing out at 6%.

.

nobody in the real world cares about a high CAD

well unless if its above 15% and govt. shows fear (those investors smell fear)

in real life investors look at eco.gr and consumption

in fact high growth wouldnt even be posibble without the unsustainable looking CAD as theres no money supply in Australia as an alternative

 

[moll.]

ts sort of right

swap d first 'Downturn' for depreciatian, (reduced demand for the Au dollar is however caused by a downturn nd reduced demand for d $au, so indirectly still right)

the second sentence is more long term however and usually is negligible, i.e net income component of CAD is very stable. usually the BOGS fluctuates severely...

btw in recent times the question in the first place is flawed, eg in April very positive outlook and there was a surplus in BOGS

The slowdown started last year, it's just gonna pick up pace after the last few weeks.

 

[moll.]

I'll give it a shot:

Downturn leads to greater international competitiveness, and since imports become more expensive they are discouraged- leading to an improvement in the balance on goods and services. During a downturn investment on the financial and capital account is reduced, meaning that payments of interest, dividends and profits will not be as high on the net income component. Ok I'm totally rambling. How about during an economic slowdown China's demand for exports does not cease too significantly whilst imports slow, improving the BOGS.

Ok I give up.. whats the answer?

Australia imports the vast majority of it's manufactured consumer goods from overseas, so any downturn in spending is gonna result in a downturn on the debit account of goods. But cos we export mostly commodities and primary goods, these aren't affected as much by adverse economic conditions.
That, and foreign investors will pull their money out in order to get better liquidity in times of global trouble, which reduces the deficit on the income account.
They're the two main reasons.

 

[BackCountrySnow]

nobody in the real world cares about a high CAD

lolwut??

 

[danz90]

lolwut??

well Australia's persisently high CAD hasn't really affected our external stability. I'm not sure about the effect of the external stability of other economies, though.


my two cents about the depreciation, is that the massive 100 basis points cut in interest rates, has seen a lot of investors pull out of financial investment flows... thus reducing a demand for $A in the forex market, leading to the rapid depreciation. The reduced foreign investment inflows are also attributed to the current deterioriating conditions of the global financial market.

So its a bit of a mixture of a few economic situations, IMO.

 

[BackCountrySnow]

well Australia's persisently high CAD hasn't really affected our external stability. I'm not sure about the effect of the external stability of other economies, though.

But if our foreign debt lay in the public sector that would be a different story..

 

[ademayd]

Australia imports the vast majority of it's manufactured consumer goods from overseas, so any downturn in spending is gonna result in a downturn on the debit account of goods. But cos we export mostly commodities and primary goods, these aren't affected as much by adverse economic conditions.
That, and foreign investors will pull their money out in order to get better liquidity in times of global trouble, which reduces the deficit on the income account.
They're the two main reasons.

well dah, but in reality NET INCOMES is very static. it takes something special for capital flight, like the current crisis.

and a percent increase in export revenue leads to a 3% increase in imports, as the money is spent on conspicous items whic aus doesnt produce

 

[moll.]

well dah, but in reality NET INCOMES is very static. it takes something special for capital flight, like the current crisis.

and a percent increase in export revenue leads to a 3% increase in imports, as the money is spent on conspicous items whic aus doesnt produce

Which in turn means that the opposite is true, no? So for every 1% drop in exports there's a 3% drop in imports, which is why our BGS is so volatile.

 

[ademayd]

Which in turn means that the opposite is true, no? So for every 1% drop in exports there's a 3% drop in imports, which is why our BGS is so volatile.

thats right :uhhuh:

but when was the last time exports decreased?
phew its been a long time,

maybe this year it might


also staying on topic currently the net cash rate is 1% (6% minus inflation which is 5%), scares the money away causing depreciation

 

[moll.]

thats right :uhhuh:

but when was the last time exports decreased?
phew its been a long time,

maybe this year it might


also staying on topic currently the net cash rate is 1% (6% minus inflation which is 5%), scares the money away causing depreciation

Global slowdown: this year they'll drop right off, even with a far more competitive exchange rate. Even China and India are feeling the squeeze.

 

[danz90]

But if our foreign debt lay in the public sector that would be a different story..

very true.

wasn't it in 2005, when our public sector debt was finally fully paid off?

 

[moll.]

very true.

wasn't it in 2005, when our public sector debt was finally fully paid off?

Public debt overall is negative (i.e surplus funds), but several state gov'ts are still in minor debt, plus the occasional public trading enterprise. But due to the $21.7b (read: $8b) surplus of this year, plus the surpluses of the previous years, this has canceled out, technically bringing the public sector out of debt.

 

[michael1990]

Public debt overall is negative (i.e surplus funds), but several state gov'ts are still in minor debt, plus the occasional public trading enterprise. But due to the $21.7b (read: $8b) surplus of this year, plus the surpluses of the previous years, this has canceled out, technically bringing the public sector out of debt.

But now that Rudd has been spending the supluses we are going to be in huge debt in like 2020 due to the 'baby boomers'. 96bn is how much it is going to cost the government. (not totally sure on date)