Economic question about the dollar

[Rainmaker]

1. A rise in the Aussie dollar makes imports cheaper (an imported item priced in, say, US dollars, will now cost fewer Australian dollars).
2. It will also make life tougher for our export industries (because the foreign currency they earn from their overseas sales will now buy fewer Aussie dollars)."

I understand the 2nd statement. However, I don't get the first statement because why are we pricing import items in US$? (We said in the 2nd statement that exporters earn foreign currency from oversees sales...so that Americans exports to Australia should be earning A$ for those American exporters).

So if an American exporter is selling some items for $AUD10K in Australia, if the Aussie dollar appreciates, then when the American converts his Aussie currency he earned back to US$, he will have more US$. So it's good for American exporters, but how is it good for importers and Australian consumers of imports?

 

[surfingman]

With the US example simply put how it works:

When importing the Australian company goes to the US and buys products to send back to AU, pays in $US therefore gets a good exchange rate for the $AU -> $US.

When Exporting the US company comes to Australian to buy then takes products to the US, they get less $AU now that the $AU is stronger compared to $US in previous periods.

They don't physically go to the countries usually but thats how the system works.....

 

[Spaghetti]

In the resource sector it can be a nightmare.

All metals are priced in USD.

The price of gold goes up when the USD gets weaker so our dollar gets stronger so the POG for us hasn't moved at all. Goes for all metals.

 

[Rainmaker]

When Exporting the US company comes to Australian to buy then takes products to the US, they get less $AU now that the $AU is stronger compared to $US in previous periods.

So you are saying for an Australian exporter, the American buyers essentially come to us and pay us $AUD for our goods?

That goes against statement #2 in my first post because Australian exporters are earning foreign currency.

But then, if we look at it from the perspective of the U.S., American exporters should be earning $AUD's which means we, as importers, buy their stuff in our own currency, not in $USD ?!

I'm a bit confused. Btw, the 2 initial statements came from Ross Gittins (http://www.smh.com.au/news/business...latest-conquest/2007/03/23/1174597886033.html)

 

[stoxclimber]

Rain, it's really quite straight forward, I think you're overthinking it.

Say the AUD = 60c USD.

Simplified Explanations:
XXX (an American manufacturer) is selling its good for $100US. Assume it is imported into Australia. In Australia, it will cost $100US + shipping, just say $100US for now. This is about $165AUD.

AAA (an Australian manufacturer) is selling its good for $120AUD. Assume it is exported to America. In America, it will cost $72US + shipping, say $72US.

Suppose the AUD appreciates so that 1 AUD= 1USD
XXX is still expecting $100US for its good, but since $100US is now only $100AUD (cf $165AUD), it is cheaper for Australian consumers.

AAA is still expecting $120AUD for its good, but since $120AUD is now $120US (cf $72US), it is now more expensive for the American consumer (and thus demand falls). Therefore, AAA's sales will decrease.