20.

It is said that Australian Dollar is very much tied with Chinese economy and Norwegian
currency with Oil price.
• Do you think this relationship is there or not?
• Give your answer with statistical relationship.
Australia exports a tremendous number of commodities like gold, iron ore, and coal. So, we can
reason that their currency would have a positive correlation with the demand and the corresponding
price of those goods. However, China being their most important trading partner, accounting to
one third of its overseas trade, the value of their currency is pretty much tied with the Chinese
economy. As the Chinese economy grows, it tends to increase demand for Australian exports such
an iron ore, coal, and agricultural products, which can increase the Australia’s revenue on those
exports strengthening the Australian dollar. On the other hand, economic slowdowns or shifts in
Chinese policy can immediately impact on Australia’s export and commodity prices, having an
adverse effect in the Australian dollar. Looking at the past data, Australia was planning to profit
from China’s pandemic recovery, but growth had stalled in China along with foreign investment
prospects.

Similarly, the Norwegian currency i.e. Norwegian krone (NOK) is influenced by oil prices as
Norway is one of the world’s largest oil exporters, and its economy is significantly influenced
by fluctuations in oil prices. The value of the krone often changes in response to the fluctuations
in global oil prices. When the oil prices rise, the Norwegian economy tends to benefit as it leads
to increased revenue from oil exports, which can boost economic growth and strengthen the
Norwegian krone, whereas, when the oil prices decline, the Norway’s economy may suffer from
decline in oil revenues which can depreciate the Norwegian krone.

Although we can establish the relationships between the Australian dollar with Chinese economy
and Norwegian krone with the oil prices, it is important to note that the value of currency is
influenced by many other factors such as interest rates, inflation, geopolitical events, and market
sentiments. The influence of Chinese economy and oil prices on Australian dollar and Norwegian
krone respectively do exist in the economy however it is not limited to them only. For instance, if
the interest rate increases keeping other factors constant, the investors see prospect in such
currency which increases the demand ultimately appreciating the value of the currency. On
contrary, if the interest rate diminishes, it will depreciate the value of the currency.