Future direction of exchange rate and how exposed the company is to exchange rate
The Goldman Sachs forecasted there will be a downward trend of Australian dollar. The exchange rate between AUD and USD will be 0.85, 0.81 and 0.8 in the future 3 month, 6 month and 12 month. The Australian chief economics Adam Boyton of Deutsche Bank also argue that due to the decreasing price of commodity, mining investment atrophy, increased unemployment rate and reduced government spending, Australian dollar will face a “benign collapse” at the end of next year, will fall to $0.66.
Other evidence includes Emirates NBD in Dubai, chief economist Tim Fox said that "the biggest factors affecting the Australian dollar exchange rate will be the RBA’s attitude relative to other central banks monetary. As the mining sector investments decreased, Australia's domestic economy will remain relatively weak. "Emirates NBD has not ruled out the possibility of the bank's interest rate cuts. Australia's benchmark interest rate is currently at a record low of 2.5%. Because the budget deficit of Australia is higher than expected this fiscal year, the Prime Minister Abbott (Tony Abbott)-led government promised to cut spending, which will drag on manufacturing and service industries shrinking resources investment decline of the Australian economy.
It has also take the long position in forward contract of EUR and NZD. In 2012, it bought EUR 34.3 million at the rate of AUD/EUR= 0.7518 and NZD 40.7 million at rate of NZD/USD = 0.7842. In 2013, at the rate of 0.7514(AUD/EUR) and 0.8109(AUD/NZD) respectively. The total value of the contract equals to €40.7 million, expired at May 2014, and NZ$61 million matured at Oct 2014. The total fair value of these foreign exchange contract in 2013 was $149 million.
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