Will the strength of the Aussie dollar weaken the economy?

Link to article

The Australian dollar has reached 80 US cents for the first time in two years, following the release of a ‘dovish’ monetary policy statement from the Federal Reserve.

How does this relate to the HSC syllabus?

  • An exchange rate refers to the rate at which one currency is exchanged for another currency. Bilateral rates measure the value of a unit of domestic currency relative to another country. The Australian dollar is often compared to the US dollar.
  • Exchange rates typically reflect the sentiment of investors and their confidence in different economies. The appreciation of the Australian dollar relative to the US dollar reflects investor’s lack of confidence in the US economy.
    • When the Federal Reserve (Fed) released their monetary policy statement, many investors felt that it was ‘dovish’. This means that the wording of the statement signalled that the Fed was less likely to increase interest rates. Relative to Australia, investors felt that the US economy would be less attractive of an investment, leading to them shifting their assets to other economies such as Australia. This is what led to the increase in demand for the Australian dollar, driving its appreciation.
    • Another reason for the appreciation is the recent demand in raw commodities, notably iron ore. When commodity prices increase, this typically benefits Australian mining companies. This leads to investors becoming more confident in the Australian economy.
  • A stronger Australian dollar benefits those who plan to consume US goods and services, but can harm domestic exporters.
    • Examples of winners include importers of US goods and travellers to the US.
    • As the Australian dollar is more expensive in the perspective of overseas purchasers, it lowers the international competitiveness of Australian exports, especially manufacturing.
    • On the other hand, manufacturers can benefit from the rising dollar if they obtain many of their raw inputs from overseas. In this sense, the effect of the rising Australian dollar on exports is ambiguous, but the net effect is usually negative for exporters.
  • The exchange rate has a large effect on Australia’s economic growth, which the RBA needs to consider when setting monetary policy.
    • An appreciated Australian dollar typically has a tightening effect on the economy, as it harms exporters.
    • An appreciated Australian dollar also naturally lowers inflation, as it results in lower imported inflation.

7-Eleven court penalties for exploiting workers tops $1 million, says Fair Work Ombudsman

Link to article

7-Eleven operators have been fined over $1 million in total for underpaying workers.

How does this relate to the HSC syllabus?

  • Australia has a national system for determining wages and working conditions, including a national minimum wage and awards.
    • The national minimum wage is determined by Minimum Wage Panel of the Fair Work Commission. Wages are adjusted annually to account for inflation and other changes. It is currently $18.29 per hour.
    • An award is a safety net for employees. It is a set of minimum wages and conditions for employees for a specific industry or occupation.
  • The Fair Work Ombudsman was a body established by the Fair Work Act 2009 to enforce workplace regulation.
    • For example, it has taken legal action against some franchisees of 7-Eleven to ensure that workers are receiving adequate compensation for their labour.
    • By ensuring that workers are being represented, it ensures a more efficient and fair labour market, and hence a greater overall standard of living.

Gary Liang GARY LIANG

Gary Liang is the founder and director of Keystone Education. He attended Sydney Boys High and achieved an ATAR of 99.95 in 2012. He achieved 5 state ranks in Mathematics, Mathematics Ext 1, Mathematics Ext 2, Chemistry and Economics. He is now studying Economics and Science (Advanced Mathematics) at the UNSW Australia, where he is the recipient of six scholarships. He has experience at a top tier investment bank and a technology startup.
Theresa Dang THERESA DANG

Theresa Dang is an economics mentor at Keystone Education. She attended Sydney Girls High and achieved an ATAR of 99.70 in 2012. She is now studying Commerce and Law at the University of Sydney. She has experience in a global technology firm, a mutual fund and a bulge bracket investment bank.

Comment