Individual Market View Report
By: Xing chi Zhou
Teacher: Pete Fernandes
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Table of Contents
I. Introduction
1.context
II. Analysis and Discussion
2. Historical and future Data
3. Factors impacting money market
3.1. Relative Inflation Rate
3.2. Relative Interest Rate
3.3. Relative Economic Growth Rate
3.4 effect of covid 19
III. Conclusion/Prediction
IV. References
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I. Introduction
This report will outline and explain the behaviours of the exchange rate pair
Australian Dollar (AUD) against Japanese Yen (JPY) Looking at news about
international and national events will be collected and used to identify and
analysis the economic and other factors that can influence the foreign exchange
rates of AUD/JYP. A prediction of the exchange rate of this currency pair in the
next 3 to 6 months will also be conducted, based on the research about the
factors that will have impact on the market.
1. Context
foreign exchange rate is defned as the value of the domestic currency in comparison
to another currency. Exchange rate will fluctuate everyday depending on demand
and supply of the currency. The impact of exchange rate in trading relationships with
another country is when the currency is lower in value, imports are more expensive
in local markets and exports are cheaper in foreign markets and vice versa.
II. Analysis and Discussion
2. Historical and future Data
Figure 1 suggest that over the last year, the exchange rate of the AUD/JYP has
been fluctuated. It can be seen that the currency pair reaches the lowest on
73.44 28th of October 2020 due to the covid lockdown that has been happening
for 4 months. The currency pair’s highest performance was from November 2020
to august 2021. Reaching the highest rate 85.18 on 10th of May 2020. This could
be due to the lift lockdown of covid and entering a normal state increased
spending on goods and services for a long period of time. According to market
watch (2021), fnancial and market analysts predict that, for about the next three
to six months, The AUD/JYP is expected to be at 81.25 to the expectation of the
Figure 1: AUD/JYP FX Rates from September 2020 to august 2021 (Eikon
Online)
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AUD to rise in 6-12 months. This means that the Australian dollar will appreciate
against JYP dollar in comparison to the current value of 79.89. will strengthen the
Australian dollar and appreciate it more against JYP dollar. In such context, the
AUD is expected to rise from current 79.89 value to 81.25 In another word, the
AUD will appreciate against JYP by an increase of 1.36 value.
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3. Factors impacting money market
3.1. Relative Inflation Rate
According to fgure 2 it shows that within 3 months, the inflation rate of Australia
jumped to 3.8% in June 2021 from 1.1% in march 2020 and matching market
consensus within 6 months. (Trading Economics, 2021) Whereas in fgure 3 the
inflation rate of Japan has increase from -0.40 in April 2020 to -0.30 in July 2021 this
a increase of 0.10% (Trading Economics, 2021) Since Japan’s inflation rate is lower
compared to Australian, this means that Japan will export more, therefore there will
be more demand for Japanese yen. Contrastingly, Australia will experience less
Figure 2: Australia Inflation Rate from august 2020 to June 2021(Trading
Economics n.d.)
Figure 3: Japan Inflation Rate from September 2020 to July 2021 (Trading
Economics n.d.)
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demand for export and more demand for imports, which shifts demand curve to the
left and supply curve to the right. As a country with higher inflation rate tends to see
a depreciation in the value of its currency. The prices of goods and services are
higher when inflation rate is high
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3.2. Relative Interest Rate
0000
The Reserve Bank of Australia has kept the cash rate unchanged at a record low of
0.1% from November 2020 to august as widely expected to continue. (Reserve bank
2021) The central bank reiterated that the conditions for an increase in the cash rate
would not be met until 2024 (Trading Economics, 2021) referring to fgure 4. on the
other hand, The Bank of Japan left its key short-term interest rate unchanged at
-0.1% and maintained the target for the 10-year Japanese government bond yield at
around 0% (Trading Economics, 2021) quoting fgure 5. When comparing the 2
interest rates it is seen that the Australia has a higher interest rate than Japan by
0.2%. Which will appeal more to overseas investors as they will be looking capitalise
Figure 4: Australia interest Rate from January 2020 to august 2021 (Reserve bank
of Australia)
Figure 5: Japan Interest Rate from September 2020 to July 2021 (Trading
Economics n.d.)
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on higher returns on goods sold. Leading to the JYP depreciating against the AUD.
Even they are both have very low interest rates due the current stay of the economy.
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3.3. Relative Economic Growth Rate
Figure 5 shows that Australia’s GDP is expected to grow by 1.8% this quarter and the
level of economic activity is now 0.8% above December quarter 2019 pre-pandemic
levels and has grown 1.1% in through the year terms. (ABS 2021). Data from forecast
suggests that Japan’s GDP growth rate will have slow increase from -0.9% to 0.3%
grew at an annual rate of 1.3% in the last quarter, raising hopes for a gradual
recovery from the painful impact of the coronavirus pandemic. (YURI K 2021). As
Australia’s GDP growth rate has a greater chance to increase than Japan’s, this
means that the demand for JYP will increase because it attracts more overseas
borrowing as Japan has a lower GDP growth rate (Figure 6).
Figure 5: Australia GDP growth from September 2019 to April 2021 (Trading
Economics n.d.) Figure 6: Japan GDP growth from September 2019 to July 2021 (Trading Economics
n.d.)
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3.4 effects of covid 19
The current covid 19 pandemics has a major effect on every economy around the
world. In the March 2020 quarter, Australia closed its borders to non-residents and
schools began to close. Two-thirds of businesses reported a reduction in turnover and
later the GDP dropped by a record 7 per cent and the unemployment rate peaked at
7.5 per cent — the highest in over 20 years. (ABS 2021) but at the start of 2021
there has been an improve with employment, and 79 per cent of Aussies agreeing
the vaccine will help get us back on tract in the economy. Japan’s economy shrank at
a slower-than-initially reported pace at the start of 2020, the coronavirus pandemic
dealt a huge blow to overall demand. GDP decline due to a smaller fall in public and
capital spending economy retreated by an annualised 3.9 percent in January-March,
not as bad as the preliminary reading of an annualised 5.1 percent contraction but
still posting the frst fall in three quarters (Aljazeera)
III. Conclusion/Prediction
economic growth rate indicates that the exchange rate of AUD/JYP may increase
since there will be a higher demand for AUD. the Reserve bank of Australia – the
Reserve bank’s action can also determine the exchange rate of AUD/JYP. In specifc, if
the Reserve bank continues to cut interest rate, this means that investors will
demand for AUD more since it has a higher interest rate, which helps them receive a
higher return.but the exchange rate will be fluctuated as Australia has entered
lockdown again meaning depreciation of the AUD similarly Japan has had major spike
in covid cases meaning they are also in lockdown also leading depreciation of the JYP.
But with the severities of covid within Japanese with over 10,000 cases daily. There
maybe the possibility that AUD/JYP will increase as AUD will appreciate compared to
JYP.
IV. References
YURI K 2021, ABC NEWS, Japan ekes out economic growth in recovery from
pandemic, 16 August 2021, viewed 1 September 2021
https://abcnews.go.com/Business/wireStory/japan-ekes-economic-growth-recoverypandemic-79473054
Department of Foreign Affairs and Trade, Australia-Japan bilateral relationship, 2021
viewed on 8 September 2021
https://www.dfat.gov.au/geo/japan/australia-japan-bilateral-relationship
Australian bureau of statistics, Consumer Price Index, Australia viewed on 28 August
2021
https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/consumerprice-index-australia/latest-release
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Australian bureau of statistics, Australian National Accounts: National Income,
Expenditure and Product, March 2021, on 28 August 2021
https://www.abs.gov.au/statistics/economy/national-accounts/australian-nationalaccounts-national-income-expenditure-and-product/latest-release
Australian bureau of statistics, one year of COVID-19: Aussie jobs, business and the
economy, viewed on 28 August 2021
https://www.abs.gov.au/articles/one-year-covid-19-aussie-jobs-business-andeconomy#:~:text=72%25%20of%20businesses%20had%20less,vacancies
%2043%25%20below%20February%20fgures.
Aljazeera, Japan economy shrinks in frst quarter – but less than expected, 8 Jun
2021, viewed 1 September 2021
https://www.aljazeera.com/economy/2021/6/8/japan-economy-shrinks-in-q1-but-lessthan-expected
MarketWatch, Australian Dollar/Japanese Yen, 1 September 2021 view 1 September
2021
https://www.marketwatch.com/investing/currency/audjpy
Trading Economics n.d., Japan GDP Growth Rate,
https://tradingeconomics.com/japan/gdp-growth
Trading Economics n.d., Australia GDP Growth Rate, viewed 1 September 2021
https://tradingeconomics.com/australia/gdp-growth
Trading Economics n.d., Japan Inflation Rate, viewed 1 September 2021,
https://tradingeconomics.com/japan/inflation-cpi
Trading Economics n.d., Japan interest rate, viewed 1 September 2021
https://tradingeconomics.com/japan/interest-rate#:~:text=Interest%20Rate%20in
%20Japan%20averaged,percent%20in%20January%20of%202016.
Reserve bank of Australia, Cash Rate Target, viewed on 29 August 2021
https://www.rba.gov.au/statistics/cash-rate/
Trading Economics n.d., Australia interest rate, viewed 1 September 2021
https://tradingeconomics.com/australia/interest-rate
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