Volatility of the australian dollar (AUD) exchange rate
Since the floating of the Australian dollar in December 1983, questions have been raised from time to time about whether the currency is 'excessively' volatile. This paper assesses the volatility of the dollar in the four years prior to the float and in the six years thereafter. The results show that while the variability of the Australian dollar has indeed increased since the float, it remains less volatile on a bilateral basis than most other major currencies and less volatile than the prices of several other assets. Furthermore, the increase in volatility of the local currency is not unique but reflects a more turbulent global foreign exchange market (aud exchange rate).
Australian Dollar - Exchange Rate?!
There has been quite a bit of discussion on this in the Australia forum over the last couple of days. Bottom line, if you're earning $ and spending $ it doesn't make any difference. If you're exchanging, well, you know what drives exchange rates so you know what its likely to do in the future.......
Alan Greenspan famously said that he hadn't seen a forecast methodology for exchange rates that outperformed a coin toss," So when someone asked, 'Is the Australian dollar going up or down?' the answer is yes, and flip a coin to find out which way it's going." but I'll bow to your accountancy knowledge.
Theres a basic (and it is basic) economic theory that says a country with higher interest rates attracts overseas investors as they will get a higher return on their funds. Because more people want to buy the currency to invest and get the higher return the currency becomes more attractive, more people want to buy it, so the rate worsens. Because Australias interest rate is higher than the UK's that makes it more attractive, and the rate worsens.
PS Meant to add- Why is the US Dollar weak? It's the million dollar question. Quite clearly the US economy is in trouble and has been for a while. Having a weak dollar as part of US Policy obviously will encourage exports and go some way to tighten the trade deficit. That being the case the US have already allowed the dollar to weaken and will continue to do so for the foreseeable future. In short this will mean strong booming economies like the Australian economy will see their currency appreciate considerable against the USD. Unless the skills shortage in Australia gets completely unsustainable and the workforce cant service the economy, I dont see any let down in this currency swing for years to come.
Australian Dollar Exchange Rate
Currency is a unit of exchange, facilitating the transfer of goods and services. Before travveling to another country be sure to check national exchange rate. If yoy are going to Asutralia, then Australian dollar exchange rate is very important. There are no currency restrictions on import and export of local and foreign currencies to Australia. Movements in the Australian Dollar (Aussie) are also dependent on movements in the Japanese Yen.
Currency is a unit of exchange, facilitating the transfer of goods and services. It is a form of money, where money is defined as a medium of exchange rather than e.g. a store of value. A currency zone is a country or region in which a specific currency is the dominant medium of exchange. To facilitate trade between currency zones, there are exchange rates i.e. prices at which currencies (and the goods and services of individual currency zones) can be exchanged against each other. Modern currencies can be classified as either floating currencies or fixed currencies based on their exchange rate regime.
For much of its history, Australia maintained a peg to the British pound reflecting its historical ties as well as a view about the stability in value of the British pound. From 1946 to 1971 Australia maintained a peg to the US dollar under the Bretton Woods system. With the breakdown of the Bretton Woods system in 1971 Australia replace the mostly fixed peg to a moving peg against the US dollar. In September 1974 Australia moved to a peg against a basket of currencies called the TWI (trade weighted index) in an effort to reduce fluctuations associated with its peg to the US dollar. The peg to the TWI was changed to a moving peg in November 1976 where the actual value of the peg was periodically adjusted. In December 1983, the Australian government "floated" the Australian dollar, meaning that it no longer managed its value by reference to any foreign currency.
The Australian Dollar is known as a "commodity currency" as it is closely tied to the prices of Gold, Copper, Nickel, Coal and Wool, all of which make up nearly 2/3 of total exports. Since these commodities account for large share of Australia's exports, the Aussie's fortunes are dependent upon the general trend in the price of these commodities. The currency usually benefits during an inflationary environment, when these commodities are leading the fray. Note for instance how the rise in gold prices in early 2002 was accompanied by a rise in the American dollar/australian dollar exchange rate. Both the currency and the metal backtracked in summer 2002 before both resuming their rally in Q4 2002.
Australia's significant close relationship with Japan (20% of total Australian exports) and the Eurozone also explains why the Aussie moves in tandem with the euro and the yen. Thus, in currency markets, one notices a fairly inverse relation between the American dollar/Australian dollar exchange and American dollar /JPY exchange rates. Like the EUR/USD and GBP/USD exchange rates, the American dollar/Australian dollar exchange rate is expressed in US dollars represented by 1 Australian Dollar.
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