Despite having just 24 million people, Australia is the 12th largest economy in the world, sitting just behind South Korea and just ahead of Russia on the global economic size league tables.
Part of the reason that Australia is such a large economy, relative to its population, is the prosperity of the Australian people and, as a consequence, the amount they consume. But Australia has always been a trading nation selling our goods, and now increasingly our services, to the world. Because we lack the economic diversity and scale of other nations, it also means Australia has always been a big importer of goods.
This means the Australian dollar is a very important part of our economic equation. It affects trade in both directions — both the sale and purchase of goods and services with foreign markets. Movements in the Australian dollar factors into the price that Australians pay to purchase goods from offshore. It also impacts the price at which foreigners buy Australian goods and services. When it appreciates or depreciates, there are flow-on effects.
A higher Aussie dollar means it’s cheaper for Australians to buy goods from offshore, to travel abroad, and to purchase foreign services. The flipside of course is that the higher Australian dollar, whether against the US dollar, Japanese Yen, Chinese Renmimbi or any other currency, the more expensive our goods and services are for businesses and consumers in other nations to buy.
Put simply, the rise or fall of the Australian dollar directly impacts the growth rate in the economy because it changes the relative cost structure of goods and services in Australia and against other nations.
This is an excerpt from Australia’s Business Challenges, a free e-book from Business Insider. Get your own copy below:
This article has been compiled by Business Insider. Bank of Queensland Limited ABN 32 009 656 740 (Australian Credit Licence No 244616) (BOQ) has not been involved in the preparation of this article. This article, and any advice that it contains has been prepared by and is the responsibility of Business Insider. The information contained in this article is of a general nature and has been prepared without taking account of your objectives, financial situation or needs. It is not intended to be nor should it be considered as professional advice. You should not act on the basis of anything contained in this article without first obtaining specific professional advice. BOQ makes no representations or warranties about the accuracy or completeness of the article. To the extent permitted by law, BOQ and its related bodies corporate, employees and contractors exclude liability for any loss or damage sustained by any readers of the article. BOQ accepts no responsibility to any persons for any loss which may be incurred or suffered as a result of acting or refraining from acting as a result of anything contained in this article. BOQ is not responsible for third party websites or articles. They do not necessarily reflect the opinions of BOQ, nor does BOQ confirm their accuracy.
Business Insider Emails & Alerts
Site highlights each day to your inbox.