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Flucations in the Australian Dollar

Uploaded by raw on Aug 19, 2001

The Australian Dollar is a "Commodity Currency". A "Commodity Currency" means that its fortunes are heavily dependent on the prices of Gold, Copper, Nickel, Coal and Wool. All of these commodities are Australia’s main exports.

At present, commodity prices are low, especially gold. Melbourne-based mining consultant Surbiton Associates said exports of Australian gold were in danger of declining if exploration failed to be supported and production declined as a result. The country produces about $5 billion worth of gold each year and over the past 10 years the metal has earned $42 billion in export revenue.

Presently, our dollar has been the weakest in history, comparable to the United States (US) dollar. The record low occurred in early April where it sank to 47.75 US cents. Compared to the US dollar, our Australian dollar buys at present 50.81 US cents. (27 July 2001).

It is unrealistic to determine what started the dollars slide or when it started. In this graph it is visible that the dollar started to drop as far back as April 1997. Although, we can never be sure that the fluctuations are actually fluctuations in the $A or those of the $US.

For that reason the following figure shows the movements in the $A against the trade weighted index (TWI). As its name indicates, the trade weighted index tries to measure the value of the $A against a basket of currencies. Those currencies are chosen to reflect the weight in Australia's trade with the countries issuing the currencies in the index.

At the moment, the US dollar is very strong. This is surprising considering that the American economy is not very strong. Interest rates in the US basically show the situation. Americas interest rates have seen five cuts over the last four months to where it now sits at 3.75%. This was the US governments’ way of trying to kick-start the economy through fiscal policy. This is why many economists believe the US dollar will subside, as there is no backing in the economy.

The “Aussie”, as it is referred to in foreign markets, is believed to be dependent on the performance of the Japanese Yen and the new Eurodollar, with the three currencies tending to move in tandem. This is because of Australia’s importing and exporting relationship with the two other currencies.

Interest Rates
At the moment the interest rate in Australia sits at 5%. In resent times interest rates...

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Uploaded by:   raw

Date:   08/19/2001

Category:   Business and Economics

Length:   4 pages (1,000 words)

Views:   1491

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