Introduction

Following the current changes in the exchange rates across different countries, there is a need to perform a detailed market analysis before venturing into international businesses. Investments that occur across different countries across the globe have become significant risks as they lead to the generation of either profits or huge losses. Assuming the price making position of X company that operates both Australia and the united states of America, this report is presented to business analyze and speculate the possible changes likely to occur in the currencies of the two countries. In other words, this report exposes the possible changes likely to occur in the AUD/USD currencies in the next three to six months.

With regards to the indicators learned under the exchange rates determination topic, the first ideology that is likely to impact the trends in the exchange rates is the interest rates of the countries. The interest rates of the country are very fundamental in determining the value of the currency of a given country. Usually, the interest rates of a state are set by the central bank of such a country (Forex-central.net, 2018). A higher interest rate is a sign of a strong economy which usually attracts most of the investors (Nick, 2018). Following the current state of the interest rates in the united states, there is a likelihood that the value of the USD will increase against the AUD. The federal government has recently voted for an increase in the interest rates by 0.25% (BBC, 2018). On the other side, the Australian central bank has retained the interest of rates of the country at 1.5%. Comparing the two circumstances, we realize that the value of the United States currency is increasing as opposed to the value of the Australian currency. Following the historical information regarding the interest rates of the two countries, the united states of America have displayed a periodic increase in the interest rates as opposed to the interest rates of Australia. Such an ideology increases the probability that the USD is likely to appreciate over the value of the AUD. The figures below provide the historical trends in the interest rates of the two countries from which speculations can be drawn (Abc.net.au (2018).

The second indicator of great concern is the relative inflation rates. The inflation rate is a situation whereby a rise in the cost of goods and services and product within a certain country (Mint.com, 2018). Usually, an increase in the prices of commodities in a growing economy is advantageous and likely to attract more investors. However, a rise in the price of commodities while the countries growth and development is stagnant is destructive. Following the calculations generated from the price of the basket products, the inflation rate in Australia has been increasing periodically from 1.25% in 2016 to 2.24% in 2018. On the other side, the inflation rate in the USA has remained constant at 2.1% in 2016 and 2017 but expected to drop in 2018. Following the fact that both Australia and the united states of America are developed nations, there exist higher chances that exchange rates of Australia will appreciate as opposed to those of the United States following the inflation rate.

Furthermore, the relative growth rate is another fundamental issue to be brought forth. A fall in the relative growth rate of a country makes interest rates to fall thus a depreciation in the currency of such a country in comparison to other countries. The United States has indicated a higher growth rate in the in the second quarter of the year whereby the value rose from 4.1% to 4.2%. Australia ion the other hand has dropped in its growth rate in the second quarter of 2018 from a value of 1.1% to a value equivalent to 0.9%. Following the relative growth rate ideology, then it is clear that the USD currency is likely to appreciate against the AUD currency.

Conclusively, it is fundamental to draw down the fact that following the three parameters, in this case, the value of the USD currency is likely to appreciate against the AUD currency. Generally, the interest rate theory and the rate of growth theory presents a similar fact, unlike the relative inflation rate that gives contradictory results. However, we cannot rely on the results from the inflation rate since the actual rate of economic growth concerning employment opportunities, and infrastructure cannot be tracked as both countries are fully developed. I would recommend for more investment in the United States rather than Australia for the maximum profitability of the company. Additionally, I would recommend for higher prizes of the products and services sold within the Australian boundaries for risk and uncertainty minimization.

References

1. Abc.net.au (2018). Will the Australian dollar be crushed as the US interest rates storm higher?Retrieved from: http://www.abc.net.au/news/2018-03-01/will-the-aussie-dollar-get-crushed-by-soaring-us-interest-rates/9492272 [Accessed on 26, September 2018].
2. BBC (2018). Federal Reserve Poised to raise interest rates.Retrieved from: https://www.bbc.com/news/business-45657009 [Accessed on 26, September 2018].
3. Forex-central.net (2018). Interest rates and inflation: their impact on currencies.Retrieved from: http://www.forex-central.net/impact-of-interest-rates-inflation-on-currencies.php [Accessed on 26, September 2018].
4. Mint.com (2018). Foureconomic growthfactors that can affect the value of your currency.Retrieved from: https://www.mint.com/vip-content/4-economic-factors-that-can-affect-the-value-of-your-currency [Accessed on 26, September 2018].
5. Nick K. Lioudis (2018). How do national interest rates affect a currency’s value and exchange rate?Retrieved from: https://www.investopedia.com/ask/answers/040315/how-do-changes-national-interest-rates-affect-currencys-value-and-exchange-rate.asp [Accessed on 26, September 2018]