QuoteDislikedWhy would foreign companies heavily invest in Australia given the dollar value?
There was an article a while back where even Chinese investors commented that Australia is slowly becoming the most expensive place to invest in - I'm not talking investing money in Australian banks, but rather in property, factories, commodities, etc.
China, on the other hand, has cheap currency, thus cheap labour, and that is primarily one of the main reasons why it has been invested in by so many foreign companies. High interest rate is far from being a...
Australia exports more than it imports. Large % of GDP is comprised of mining, commodities, and agricultural exports. High AUD hurts exports. That is why RBA is considering intervening-to help exports.
Cost of commodities are relative to the domestic currency, not AUD unless you live there. If they are domiciled in Australia, it is irrelevant as they produce revenue in AUD. Higher cost of inputs should translate to higher output costs. Generally, EBIT should track inflation.
Exchange rate will not affect the cost of property or factories except vis a vis its affect on domestic growth rates and inflation. If RBA, were to lower rates, AUD might fall, but cost of property would rise as generally, if you are long tangible assets, you are long the bond market. E.G. if I own a house, and rates fall, generally, the value of my house will rise. Of course, standard of living, mean wages, employment, population growth, etc are factors. But in the beginning, were RBA to start cutting rates it should lead to more lending and risk taking and higher prices.
As with most things in economics, this is not cut and dried and can get rather complex as there are exceptions and consequences to market inefficiencies caused by government interference where the general rules no longer apply.
Cost of labor is not directly correlated to exchange rate. China keeps its exchange rate artificially low to aid its own exports. In a free market, that export demand would lead to appreciation as foreigners demand the yuan to purchase imports and of course, the standard of living and mean wages should also rise as export demand creates economic growth.
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