fundamental analysis of australia (aud)

7/28/2019 Fundamental Analysis of Australia (AUD)

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Money and Banking

Group: G

Members: Hussain Baig

Fahad Ahmed Khan

Hassan Ali Khan

Adil Khursheed

Assignment: Fundamental Analysis (AUD/USD)

Five year chart history and reasons

Openness in market

Correlation.


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Fundamental analysis of AustraliaNatural ResourcesAustralian resources and major export ports map

Coal is mined primarily in Queensland, New South Wales and Victoria. 54% of the coal mined in

Australia is exported, mostly to East Asia. In 2000/01, 258.5 million tons of coal was mined, and

193.6 million tons exported. Coal also provides about 85% of Australia's electricity production.

In fiscal year 2008/09, 487 million tons of coal was mined, and 261 million tons exported.

Australia is the world's leading coal exporter.

Minerals and resourcesLarge quantities of minerals and resources are extracted in Australia. These include:

Iron ore Australia was the world's third largest supplier in 2008 after China and Brazil,supplying 342 million metric tons.

Nickel Australia was the world's second largest producer in 2006 after Russia. Bauxite/aluminium- Australia was the world's largest producer in 2011. Copper Gold Australia is the second largest producer after China. Silver Uranium Australia is responsible for 11% of the world's production and was the world's third

largest producer in 2010 after Kazakhstan and Canada.

Diamond Australia has the third largest commercially-viable deposits after Russia andBotswana.Australia also boasts the richest diamantiferous pipe with production reaching peak

levels of 42 metric tons (41 LT/46 ST) per year in the 1990s.

Opal Australia is the world's largest producer of opal, being responsible for 95% of production. Zinc Australia was second only to China in zinc production in 2008, producing just under 14%

of world production.

Coal Australia is the world's largest exporter of coal and fourth largest producer of coal behindChina, USA and India.

Oil shale Petroleum Australia is the twenty-eighth largest producer of petroleum. Natural gas - Australia is world's third largest producer of LNG and forecast to be world leader

by 2020.

rare earths Australia is a major agricultural producer and exporter. Agriculture and its closely

related sectors earn $155 billion-a-year for a 12% share of GDP. Australian farmers and

grazers own 135,996 farms, covering 61% of Australias landmass. Across the country

there is a mix ofirrigation and dry-land farming.
http://en.wikipedia.org/wiki/Aluminiumhttp://en.wikipedia.org/wiki/Aluminiumhttp://en.wikipedia.org/wiki/Aluminium


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Much of the raw material mined in Australia is exported overseas to countries such as China for

processing into refined product. Energy and minerals constitute two thirds of Australia's total

exports to China, and more than half of Australia's iron ore exports are to China.

Australia Inflation Rate

The inflation rate in Australia was recorded at 1.20 percent in the second quarter of 2012. Historically,

from 1973 until 2012, Australia Inflation Rate averaged 5.8 Percent reaching an all time high of 17.6

Percent in March of 1975 and a record low of -0.3 Percent in September of 1997. Inflation rate refers to

a general rise in prices measured against a standard level of purchasing power. The most well known

measures of Inflation are the CPI which measures consumer prices, and the GDP deflator, which

measures inflation in the whole of the domestic economy. Country comparison to the world:71

Australian Inflation rose 1.2% through the year to the June quarter 2012, compared with a rise of 1.6%

through the year to the March quarter 2012.

The Consumer Price Index (CPI) rose 0.5% in the June quarter 2012, compared with a rise of0.1% in the March quarter 2012.

The most significant price rises in the June quarter 2012 were for medical and hospital services

(+2.8%), rents (+1.1%), vegetables (+5.2%) and furniture (+4.5%). The most significant offsetting

price falls were for domestic holiday travel and accommodation (4.0%), audio, visual and

computing equipment (3.8%) and cakes and biscuits (2.8%).
https://www.cia.gov/library/publications/the-world-factbook/rankorder/2092rank.html?countryName=Australia&countryCode=as&regionCode=aus&rank=71#ashttps://www.cia.gov/library/publications/the-world-factbook/rankorder/2092rank.html?countryName=Australia&countryCode=as&regionCode=aus&rank=71#ashttps://www.cia.gov/library/publications/the-world-factbook/rankorder/2092rank.html?countryName=Australia&countryCode=as&regionCode=aus&rank=71#as


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Australia GDP

The Gross Domestic Product (GDP) in Australia was worth 1371.76 billion US dollars in 2011, according

to a report published by the World Bank. The GDP value of Australia is roughly equivalent to 2.21

percent of the world economy. Historically, from 1965 until 2011, Australia GDP averaged 328.1 billion

USD reaching an all time high of 1371.8 billion USD in December of 2011 and a record low of 25.4 billion

USD in December of 1965. The gross domestic product (GDP) measures of national income and output

for a given country's economy. The gross domestic product (GDP) is equal to the total expenditures for

all final goods and services produced within the country in a stipulated period of time. This page

includes a chart with historical data for Australia GDP.

Australia GDP Annual Growth Rate

The Gross Domestic Product (GDP) in Australia expanded 3.7 percent in the second quarter of 2012 over

the same quarter of the previous year. Historically, from 1960 until 2012, Australia GDP Annual Growth

Rate averaged 3.5 Percent reaching an all time high of 9.0 Percent in June of 1964 and a record low of -

3.4 Percent in June of 1983. The annual growth rate in Gross Domestic Product measures the increase in

value of the goods and services produced by an economy over the period of a year. Therefore, unlike

the commonly used quarterly GDP growth rate the annual GDP growth rate takes into account a full yearof economic activity, thus avoiding the need to make any type of seasonal adjustment.


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Australia GDP Growth Rate

The Gross Domestic Product (GDP) in Australia expanded 0.6 percent in the second quarter of 2012 overthe previous quarter. Historically, from 1959 until 2012, Australia GDP Growth Rate averaged 0.9

Percent reaching an all time high of 4.5 Percent in March of 1976 and a record low of -2.0 Percent in

June of 1974. The Gross Domestic Product (GDP) growth rate provides an aggregated measure of

changes in value of the goods and services produced by an economy. Australia's economy is dominated

by its services sector, yet its economic success is based on abundance of agricultural and mineral

resources. Australia's comparative advantage in the export of primary products is a reflection of the

natural wealth of the Australian continent and its small domestic market. The country is a major regional

financial centre and a vital component of the global financial system.

Australia GDP per capita

The Gross Domestic Product per capita in Australia was last reported at 27427.64 US dollars in 2011,

according to a report published by the World Bank. The GDP per Capita in Australia is equivalent to 222

percent of the world's average. Historically, from 1965 until 2011, Australia GDP per capita averaged

17252.8 USD reaching an all time high of 27427.6 USD in December of 2011 and a record low of 10449.8

USD in December of 1965. The GDP per capita is obtained by dividing the countrys gross domestic

product, adjusted by inflation, by the total population.


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Australia Productivity

Productivity in Australia increased to 163.14 Index Points in May of 2012 from 162.67 Index Points in

February of 2012. Historically, from 1968 until 2012, Australia Productivity averaged 125.6 Index Points

reaching an all time high of 163.1 Index Points in May of 2012 and a record low of 85.6 Index Points in

February of 1968.

Australia Employed Persons

Employed Persons in Australia decreased to 11498.10 Thousand Persons in August of 2012 from

11506.90 Thousand Persons in July of 2012, according to a report released by the Australian Bureau of

Statistics. Historically, from 1978 until 2012, Australia Employed Persons averaged 8389.3 Thousand

Persons reaching an all time high of 11525.1 Thousand Persons in May of 2012 and a record low of

5997.6 Thousand Persons in September of 1978.


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Australia Unemployment Rate

The unemployment rate in Australia was last reported at 5.1 percent in August of 2012. Historically,

from 1978 until 2012, Australia Unemployment Rate averaged 7.0 Percent reaching an all time high of

10.9 Percent in December of 1992 and a record low of 4.0 Percent in February of 2008. The

unemployment rate can be defined as the number of people actively looking for a job as a percentage of

the labor force. Country comparison to the world:

Political stability

In contrast to many locations in Asia, Australia is regarded as having a very low risk of political instability.

Australia ranked third in the world for political stability in the IMD World Competitiveness Yearbook2010 and has been ranked in the top four countries for this indicator for the last 11 years. A stable

political framework makes Australia a safe investment location.

Australia is a constitutional democracy based on a federal division of powers. It is one of the worlds

oldest democracies. Significant government conventions have been adopted by Australia from the

system of government developed in the United Kingdom (the Westminster system) at both the

Commonwealth and State levels. This has provided for very stable government in Australia, with the


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Opposition typically forming a 'Shadow Cabinet' of members of Parliament who prepare themselves to

take over the reins of government.

New South Wales is governed by a ministry headed by the Premier (as in all other states). The State

Cabinet, chaired by the Premier, is the centre of political power in New South Wales. The legislative

power of each of the states is defined by the Commonwealth and State constitutions, and includes

education, roads, hospitals, police, public transport and overseeing local government.

Risk of Political Instability, 2010

Footnotes:

1: 0 = very high, 10 = very low.

Source: The IMD World Competitiveness Yearbook, 2010, Switzerland,www.imd.ch/wcy
http://www.imd.ch/wcyhttp://www.imd.ch/wcyhttp://www.imd.ch/wcyhttp://www.imd.ch/wcy


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TRADE OPENNESS: Consumers in other countries may know Australia best for its beer, dairy andwool products, but Australias economy relies very little on exports. Of the 30 members of the

Organization for Economic Cooperation and Development, only 3 are less export-dependent Greece, theUnited States and Japan (New York Times, 7 March 2003, p W1).

There is substantial interest among academics and policy-makers in the role of external trade inmacroeconomic outcomes. For example, there is a vigorous debate among economists as to whether tradeopenness influences either the level or growth of output (see, for example, Frankel and Romer 1999, andRodriguez and Rodrik 2001). In the Australian case, trade is considered an integral part of economic

activity and, among Australians at least, it is widely perceived that Australia is a very open economy. Yet,as shown in Figure 1, Australian trade (exports plus imports, a broader measure than used in our openingquote) as a proportion of GDP (henceforth termed openness) is relatively small compared to other

industrialized countries.1 With exports and imports of goods and services each equivalent to around 2122 per cent of GDP, Australias 2002 openness ratio of 43 per cent was substantially below the medianfor OECD countries of 69 per cent. In addition, of the 136 countries and territories for which the Penn

World Tables have data for 2000, Australia was the 20th

least open economy.

The fact that Australia trades less than other countries does not necessarily imply that Australia trades less

than would be expected. There could be good reasons for its relatively low openness. For example, itmight reflect Australias geographic isolation, especially from the economic mass of North America andEurope.2 another plausible factor might be Australias geographic size. Geographically larger countrieswill typically have more diversified endowments, allowing them to produce a wider range of agricultural

and resource products, which means they may have less need to trade than smaller countries. Thus,although Australia trades much less than most other OECD countries, it might actually be the case that ittrades more than would be expected given its geographic attributes.


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Interpreting Australias Low Openness Ratio

The regression results from Section 3 permit one to ask whether countries trade more or less thanexpected. Our specific interest is Australia. Using the 19962000 cross-section regression, the equation

predicts an openness ratio for Australia of 41.8 per cent, which is only modestly above the actual ratio of

38.3 per cent.28 That is, although Australias openness ratio is relatively low by international standards,

the regression results suggest that this ratio is about the level that one might expect. This is consistent

with the finding in Table 2 that an Australian dummy variable is always insignificant in the cross-section

and pooled openness regressions.

The estimates of the effect of various factors on openness also allow us to shed light on why countries

trade as much or as little as they do. To this end, Table 7 reports how Australia compares with the

sample average. The first column of data shows the difference between the Australian value and the

mean value for the sample, divided by the standard deviation of the sample. Using a common unit, the

standard deviation of each variable, this allows us to see whether Australias difference from the rest of

the world for each variable is large or small. The datashow that Australia differs substantially from thesample average in terms of having a much larger land mass and having a less favorable (or more remote)

location. In addition, Australia has a substantially higher income level and has a more liberal trade

regime than most of the 120 countries in our sample, though its differences with the OECD average on

these scores are much smaller. The second column is based on the 19962000 cross-section regression

in Table 2 and shows whether a unit of one standard deviation of the variable has a relatively large or


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small effect on openness in the regression. Based on this measure, population is the most important

variable for openness, followed by economic location and geographic size.

The last column in Table 7 is the product of the first two columns and provides an assessment of which

variables are most important in explaining Australias low openness ratio. The results suggest that an

unfavorable economic location and substantial area have the largest effect in reducing Australias

openness, accounting for around three-quarters of the deviation from the sample average. Economic

location is the most important variable in this regard, accounting for about half the deviation. For

example, a simple counterfactual of imagining Australia near the middle of the North Atlantic Ocean,implying an improvement in our economic location to near the sample mean, would result in Australias 30 Predicted openness ratio jumping from around 0.42 to around 0.51, or exports and imports rising from

around 21 per cent of GDP to around 2526 per cent.29

A final point to note, which is especially relevant for Australias economic location, is that any measure

of location or remoteness will change with shifts in the relative economic size of other countries. The

experience of recent years indicates that with its relative proximity to Asia, Australia has benefited

strongly from the growth of that region.30 Looking ahead, the most obvious trend is likely to be the

continuing growth of India and China, which in 2002 accounted for 38 per cent of the worlds population

but only 5 per cent of world GDP at market exchange rates. Australias relative proximity to these

countries suggests that its economic location is likely to improve in coming years as these economies

grow.


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Historical Data of AUD/USD for the month of September


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AUD/USD Pair Chart

Five Year

Quarterly Report


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Date: 5, Oct, 2012 Open: 1.0239 High: 1.0273 low: 1.0151 Close: 1.0179

Reasons:U.S. Jobless Rate Unexpectedly Falls to 7.8%; 114,000 Jobs Added

Currency decreased because WASHINGTON (Market Watch) - The U.S. economy generated a lackluster

114,000 jobs in September, but the unemployment rate fell to 7.8% from 8.1%, the lowest level sinceJanuary 2009, the government said Friday. Economists surveyed by Market Watch expected a 110,000

increase in jobs, based on the Labor Department's survey of businesses. The unemployment rate, which

is drawn from a separate survey of households, was forecast to tick up to 8.2% from 8.1%. Yet the

jobless rate fell sharply after the biggest increase in employment as measured by the household survey

since 1983. Some 873,000 people in the household survey said they found jobs. Employment gains for

August and July, meanwhile, were revised higher by a combined 86,000. The number of new jobs

created in August was revised up to 142,000 from an original estimate of 96,000. July's figure was


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revised up to 181,000 from 141,000. In September, average hourly wages rose 7 cents, or 0.4%, to

$23.58. The average workweek edged up 0.1 hour to 34.5.

Date: 27, Oct, 2011 Open: 1.0399 High: 1.0752 low: 1.0381 Close: 1.0715

Reason no: 1EU official: Banks to take 50pct cut on Greek debt

1--A European Union official says the currency union's leaders have reached a deal with banks to take

losses of 50 percent of their Greek bonds in a key move to solve the euro zones debt crisis. The official

was speaking early Thursday morning on condition of anonymity pending an official statement. A second

official confirmed that there was a voluntary deal.

Reason no: 02BOJ Enhancement of Monetary Easing2A--At the Monetary Policy Meeting held, the Policy Board of the Bank of Japan decided, by an 8-1

majority vote, 1 to enhance monetary easing by increasing the total size of the Asset Purchase Program

by about 5 trillion yen, from about 50 trillion yen to about 55 trillion yen.2 The increase in the Program

is designated for the purchase of Japanese government bonds.3

b-- The Policy Board also decided, by a unanimous vote,4 to set the following guideline for money

market operations for the intermeeting period: The Bank of Japan will encourage the uncollateralized

overnight call rate to remain at around 0 to 0.1 percent.

c-- Japan's economic activity has continued picking up while the supply-side constraints have been

gradually resolved. Meanwhile, financial conditions have continued to ease as issuing conditions for CP

and corporate bonds have remained favorable and firms' funding costs have declined moderately. As for

the outlook, although an adverse effect from a slowdown in overseas economies and the appreciation of

the yen will continue for the time being, Japan's economy is expected to return to a moderate Recovery

path because the pace of recovery in overseas economies will subsequently


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Correlation Table

The following tables represents the correlation between the various parities of the foreign

exchange market.

The correlation coefficient highlights the similarity of the movements between two parities.

If the correlation is high (above 80) and positive then the currencies move in the same way. If the correlation is high (above 80) and negative then the currencies move in the opposite way. If the correlation is low (below 60) then the currencies don't move in the same way.

5min Correlation

AUDUSDEURJPYEURUSDGBPUSDNZDUSDUSDCADUSDCHFUSDJPY

AUDUSD100 39.2 50.3 26.2 51.1 -68.3 -24.9 22.8 AUDUSD

EURJPY 39.2 100 94.6 56.5 57 -62.1 -75 94.6 EURJPY

EURUSD 50.3 94.6 100 62.7 52.2 -70.6 -80.5 79.6 EURUSD

GBPUSD 26.2 56.5 62.7 100 30.4 -71.4 -29.6 44.7 GBPUSD

NZDUSD 51.1 57 52.2 30.4 100 -52.8 -37.6 55.6 NZDUSD

USDCAD -68.3 -62.1 -70.6 -71.4 -52.8 100 34.2 -46.4 USDCAD

USDCHF -24.9 -75 -80.5 -29.6 -37.6 34.2 100 -61.9 USDCHF

USDJPY 22.8 94.6 79.6 44.7 55.6 -46.4 -61.9 100 USDJPY



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Hourly Correlation


AUDUSD100 9.6 6.1 -7.8 44.6 -45.6 -3.7 14.8 AUDUSD

EURJPY 9.6 100 98.2 85.5 64.2 -86.2 -96.6 95.1 EURJPY

EURUSD 6.1 98.2 100 90.5 68.6 -83.6 -98.9 87.6 EURUSD

GBPUSD -7.8 85.5 90.5 100 54.8 -66.4 -93.2 70.8 GBPUSD

NZDUSD 44.6 64.2 68.6 54.8 100 -69.6 -67.8 52.1 NZDUSD

USDCAD -45.6 -86.2 -83.6 -66.4 -69.6 100 81.6 -83.8 USDCAD

USDCHF -3.7 -96.6 -98.9 -93.2 -67.8 81.6 100 -85.3 USDCHF

USDJPY 14.8 95.1 87.6 70.8 52.1 -83.8 -85.3 100 USDJPY


Daily Correlation


AUDUSD100 9.6 6.1 -7.8 44.6 -45.6 -3.7 14.8 AUDUSD

EURJPY 9.6 100 98.2 85.5 64.2 -86.2 -96.6 95.1 EURJPY

EURUSD 6.1 98.2 100 90.5 68.6 -83.6 -98.9 87.6 EURUSD

GBPUSD -7.8 85.5 90.5 100 54.8 -66.4 -93.2 70.8 GBPUSD

NZDUSD 44.6 64.2 68.6 54.8 100 -69.6 -67.8 52.1 NZDUSD

USDCAD -45.6 -86.2 -83.6 -66.4 -69.6 100 81.6 -83.8 USDCAD

USDCHF -3.7 -96.6 -98.9 -93.2 -67.8 81.6 100 -85.3 USDCHF

USDJPY 14.8 95.1 87.6 70.8 52.1 -83.8 -85.3 100 USDJPY



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Weekly Correlation


AUDUSD100 9.6 6.1 -7.8 44.6 -45.6 -3.7 14.8 AUDUSD

EURJPY 9.6 100 98.2 85.5 64.2 -86.2 -96.6 95.1 EURJPY

EURUSD 6.1 98.2 100 90.5 68.6 -83.6 -98.9 87.6 EURUSD

GBPUSD -7.8 85.5 90.5 100 54.8 -66.4 -93.2 70.8 GBPUSD

NZDUSD 44.6 64.2 68.6 54.8 100 -69.6 -67.8 52.1 NZDUSD

USDCAD -45.6 -86.2 -83.6 -66.4 -69.6 100 81.6 -83.8 USDCAD

USDCHF -3.7 -96.6 -98.9 -93.2 -67.8 81.6 100 -85.3 USDCHF

USDJPY 14.8 95.1 87.6 70.8 52.1 -83.8 -85.3 100 USDJPY


fundamental analysis of australia (aud)

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