Exchange Rate 2: Electric Boogaloo

Have you ever cared about exchange rates or the value of Australian dollar?

For many, that answer will be no – but you should, the impacts it has on your daily life are too significant to ignore.

Admittedly, many of us only physically deal with the exchange rate when we are travelling overseas and exchanging our dollars into some foreign currency. For anywhere between a day and a few months we are forced to think about the exchange rate every time money is spent. We are also forced to consider the real cost of goods when we are internet shopping and, to our dismay, realise that the prices are all listed in USD.

But the value of Australian dollar affects us in many ways, and offers countless opportunities in its fluctuations.

Consider, for example, this hypothetical scenario: Malcolm Turnbull has been conspiring with the Reserve Bank of Australia (RBA) to do some funny business with the economy, and overnight, the value of the Australian Dollar suddenly becomes equal to the American Dollar. A massive 30 percent increase. Just imagine!

From a dull economist’s point of view, this is really not a favourable situation for the Australian economy. Australia already had an awful trade deficit of $36.8 billion in the financial year of 2015-16, and the appreciation of Australian dollar would simply worsen this. If the value of the Australian dollar increases, imports become relatively cheaper because Australian dollar can be exchanged for more foreign currency. So, while we can buy more of those terrible American beers – I’m looking at your Bud Light, Australian exports, like that delicious Aussie beef, would become more expensive for foreigners. As a result, imports would increase and exports would fall, worsening the trade deficit. This could, at some point, also lead to an increase in unemployment and a decrease economic growth – both of which are unfavourable outcomes for the economy and the country as whole.

Now, with all that economic mumbo-jumbo out of the way, how would Malcolm’s meddling affect us innocent, kind, loving students?

Let’s begin with international students, as they are most at risk of adverse effects. Parity with the US dollar could be disastrous for anyone studying abroad in Australia, as all the expenses they face domestically would be increased by 30 percent. For example, prior to the shift in the exchange rate, a textbook that is AU$100 would be US$77. After appreciation, however, while still costing AU$100, the textbook would cost US$100, which is a 30 percent increase from US$77.

Research from HSBC in 2014 showed that Australia had the highest annual fee for international students, reaching US$42,093 a year. This was followed by the United States at US$36,564 per year and the United Kingdom at US$35,045. If the Australian dollar appreciates, university fees would be even higher in US dollars or any other currency. International students who are currently studying in Australia may leave to go to other countries for their higher education, and those who plan are intending to study overseas may choose other countries when the time comes to make a choice. You might have to say goodbye to some of your closest international friends. How will ANU source all those fun pictures of ‘multicultural friends’ sitting smiling on the lawn smiling then?

Domestic students would also be affected, of course. In contrast to international students, however, domestic students would often pay lower prices for goods. The most noticeable change in price would be from imports. When the Australian dollar appreciates, more internationally imported products can be bought with the same amount of Australian dollar. The funny thing is, that imported goods aren’t that exciting or rare – you run into these goods more often than you’d think. A study conducted in 2015 found that only 41 percent of Coles, 39 percent of Woolworths and 13 percent of Aldi products were sourced from local suppliers. So after Malcolm interfered you would see price cuts all over the place – local supermarkets would be bursting with the fluro glow of ‘reduced price’ labels.

Travelling overseas would also become cheaper for domestic students. This would be the time to travel if you wanted to maximise on the things you could do and get with your savings. That luxurious hotel might no longer be out of reach, and you would be able to purchase significantly more goods and souvenirs, and afford the extra luggage allowance on the way home. In the future remember to time your travels remember to choose a time when Australian dollar appreciates to go on a trip. If you time it well, you can save so much more money.

Now that you know that you’re inevitably going to be affected by the value of the Australian Dollar, and how you can use it to your advantage, I hope you pay more attention to the newspaper when it comes to exchange rates. The exchange rate – without Malcolm’s meddling – will always affect you, me and most definitely the cost of coffee at Coffee Grounds. So next time you meet someone from the RBA, tell them that you never want to see a Bud Light hit the supermarkets and that you want to go to Vietnam for the summer.