“Goldman Sachs has lowered its Australian dollar forecast for the next 12 months
ID: 1152935 • Letter: #
Question
“Goldman Sachs has lowered its Australian dollar forecast for the next 12 months to US80¢ as it tips a decline in the terms of trade, less supportive capital flows, concerns about Chinese financial conditions and a further cut in interest rates.”
The Sydney Morning Herald, March14, 2014
http://www.smh.com.au/business/markets/currencies/australian-dollar-heading-tous80c-goldman-sachs-20140314-34qpl.html#ixzz3DtgNf8NA
Explain the likely consequences for Australia of the significant depreciation of the Australian dollar that is forecast by Goldman Sachs.
Explanation / Answer
Ans
Exports will rise as they become cheap to foreigners. Imports will fall since now they become dear. Thus will improve bop and increase employment. However capital outflow will reduce investment, growth rate and employment. Further Critical imports necessary for growth will fall and thus growth rate may fall. Depreciation will also led to destabilizing speculation against Australian dollar and also foreign investors confidence on Australia will fall. Thus will decrease growth rate. However this is true in case of severe depreciation. Milf depreciation by stimulating exports may be good for Australia
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