Posted by Allison on 29 July 2013, 09:26
We are used to seeing currencies of all shapes and sizes going up and down in value over time. This is quite normal but sometimes those highs and lows can be more severe than at other times. When this happens it is possible to see how big changes can affect whether imports and exports are successful or not.
A recent example could be seen in Australia, where the Aussie dollar has been extremely strong. This is good in some ways, but when it comes to manufacturing, a strong Aussie dollar puts pressure on one side of the equation. In this case it is the exports that become more expensive. Countries with much cheaper manufacturing methods and labour costs are able to produce exactly the same items at a much lower price than the Australians can. This is why exports costs rise and the country is flooded with much cheaper imports.
You can think of importing and exporting as a set of scales. If the currency of one particular country is strong, as it is in Australia, it is the exports that suffer while the imports improve. In contrast, when the Aussie currency is weak, the exports would become stronger while the imports would reduce in volume. When you understand the correlation between the two you can see how important it is to keep an eye on the value of the currency.
As you may now expect, it is not just Australia that is experiencing this disparity between its imports and exports. Other countries are suffering in a similar way. In other cases it might be the exports that are doing particularly well, while the imports are struggling to perform in the same way. Each situation has an effect on the country overall, although of course many other factors also come into play.
Many countries can accept subtle changes in the ebb and flow of their currencies. However as we can see there is a big difference between this situation and the major ups and downs that a currency can experience. In this instance Australia is finding it hard to cope with a strong currency. It remains to be seen whether this situation will continue.