Aussie dollar scales fresh heights

The Australian dollar has scaled fresh heights against the pound and remains in near-record territory against the euro and the US dollar as the prospect of higher interest rates lures investors around the globe.

The dollar touched 67.675 UK pence in recent trading, the highest since 1985. It also passed though 77 euro cents for the first time this year, and remains within range of its previous record against the european currency of 77.35 euro cents reached at the end of 2010.

The Aussie dollar’s latest surge was sparked by a surprise jump in the June quarter inflation figures released yesterday, which shifted the likelihood that the Reserve Bank’s next move would be to cut interest rates. Odds now favour a rate rise, although most commentators doubt the central bank would lift borrowing costs at a time of worries about the debt woes in US and a slew of European countries.

The Australian dollar rocketed one US cent yesterday to reach $US1.1081 in late local trading, the highest since the local currency floated in 1983. It eased to $US1.104 at the local close and was recently trading at $US1.1051. It was also worth just under 86 yen.

Read more from The Age:


Another retail collapse

Earlier this month we saw an announcement that troubled retail group, RED group, the owner of the Borders and Angus & Robertson bookshops would close the last nine remaining Borders stores in Australia, with the loss of another 315 staff members by the end of July.

Today, we hear that more than 1000 employees of crippled retailer Colorado are to lose their jobs after 140 ‘under performing’ stores are closed, slashing the size of the chain by almost a third.

What do you think?

  1. What other businesses in Australia have recently shed staff? (see earlier post)
  2. How much have global economic conditions impacted on retail conditions in Australia?
  3. Are these retailers victims of the increasing trend towards Internet shopping?

Read more from The Age:

Economic Update: Employment

Australia’s national unemployment rate has remained steady at 4.9 per cent for the third month in a row. However, unemployment in Victoria has reached a six month high of 5.1 per cent, a rise of 15,000 people in a month. Job cuts by some of Victoria’s largest employers – Heinz, Foster’s, Ford and Telstra have all added to the increse

According to The Age,  the Australian dollar dropped on the jobs news, sinking about a full US cent to $US1.056 in recent trading, as investors bet the Reserve Bank was less likely to raise interest rates soon. Financial markets estimate the chance of an RBA rate rise in July is just 1 per cent, with only a 40 per cent chance the cash rate will be raised to 5 per cent by one year’s time.

These jobs figures add to a slew of recent figures pointing to a soft economy. Data out this week showed construction had contracted for 12 consecutive months while massive floods across large parts of the country this year contributed to the first quarterly shrinkage of the economy since 1991. House prices are also flat or falling in most cities, adding to households’ reluctance to spend.

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The Basic Economic Questions

All economies regard scarcity as the most important economic problem. As such, there are not enough resources to cater for all the unlimited wants of people. Because of this scarcity, economists and governments try to answer three basic economic questions:

1. What to produce?

This decision is often a matter for the business sector. Businesses have to decide what goods and services to produce and how much of each good or service  to produce. As we have seen, more of one thing generally means less of another (opportunity cost), so some difficult decisions arise here in the allocation of resources.

In a market capitalist economy, what to produce tends to be decided by the market. Businesses will look at demand and try to produce goods and service where there is the greatest level of demand. This question is then answered by the market forces of demand and supply.

2. How to produce?

Businesses will decide this on the basis of cost. Their aim is to make a profit – in fact the maximum profit possible. To help them do this, they need to produce as efficiently as possible. The more efficiently they produce, the lower the cost of production. So how much they use of each factor of production will depend on how much that factor costs and how productive it is. If labour is cheap, but nevertheless nearly as productive as more expensive machinery, then the business may choose labour intensive production. If, however, machines are more productive per dollar spent, then they may choose capital intensive production.

3. For whom to produce?

This question is to do with distribution of goods and services. Capital will shift to the areas where demand is highest. However, some consumers can not afford to pay the full market price for goods and services. So that some people do not miss out on basic goods and services, the government may subsidise the price of some things, for example education and health services.

Factors of Production

All the goods and services produced by businesses are produced using four economic resources or factors of production. The four factors of production are:


  1. Land and physical found in nature such as water, trees, gas and oil deposits, mineral deposits and soil.
  2. Labour or human resources. These are the employees of the business. Employees are considered to be the most important asset of any business and are the distinguishing factor between any two identical organisations.
  3. Capital or financial resources including machinery, equipment, buildings, factories and transport.
  4. Management or enterprise to provide the knowledge, information and entrepreneurial ability to manage and coordinate the other three resources in the production process.

How these four factors of production are combined will distinguish one business from the next. The skills and expertise of the management team in co-ordinating the resources of the business will largely determine whether it achieves its objectives.