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Major Domestic & International Events Impact The Value Of The Australian Dollar

1556 words - 7 pages

Good morning...Today I will be talking about the fluctuations in the Australian dollar by some of the major domestic and international events.'The Australian dollar is the currency of the Commonwealth of Australia, it is currently the fifth-most-traded currency in the world foreign exchange markets, accounting for over 6% of worldwide foreign-exchange transactions. The Australian dollar is a commodity dominated currency and is popular with currency traders due to high interest rates in Australia, a relative lack of central bank intervention, the general stability of the economy and government, and it lends greater exposure to Asian economies and the commodity super cycle.'Increase in ...view middle of the document...

The Australian Dollar is also influenced by domestic factors. These include, level of interest rates, level of economic growth and other economic indicators such as inflation. The Reserve Bank of Australia can also influence the level of exchange rates during times of instability, by buying and selling currencies.Currently in 2009, there is two major effects on the Australian dollar. One - foreigners that import Australian goods and services must buy the local currency to pay for the nation's exports. Two - the amount of exports the nation is producing says a lot about its economy, and investors are fairly wise to know how to understand these figures. It means that investors are more likely to invest their funds in countries that have better exporting data, and therefore create more demand for the local currency, and this has a direct impact on the value of the currency.Therefore, if Australian exports are in high demand, there will also be a high demand on the currency to pay for the exports, these demand pressures cause the value of our dollar to rise. The opposite occurs if the demand for exported goods decline.This is one of the reasons why the effectiveness of Reserve Bank intervention in the foreign exchange market is becoming less as financial markets expand. While the Reserve Bank can probably be quite effective at pushing the Australian dollar down by selling the currency, it is very limited in pushing it up. The RBA only has its limited foreign reserves to buy the Australian dollar. The amount of Australian dollars traded in one day in Australia's foreign exchange market exceeds its total foreign reserves.So now we know some of the impacts of the Australian dollar, now the question; where does the Australian dollar stand today in 2009 and what are its forecasted values?Back in July 2008, everyone was talking about how the Australian dollar could reach the same rate as the US dollar. At the time, the currency pair was trading at 0.9845 a 20 year high. However what rises quickly can also fall quickly because when commodity prices peaked in July the Australian dollar came crashing down. The currency fell close to 40 percent against the US dollar to a 5 year low before finding support above 60 cents. The move was even more dramatic against the Japanese Yen, it traded as high as 104 yen earlier this year before it dropped to a record low. Despite the dramatic moves, the Australian dollar's weakness was not universal. Since the beginning of the year, the currency actually strengthened against the British pound and New Zealand dollars. These currency fluctuations are particularly important because Japan, China and the US are the largest export destinations for Australia and a weaker currency reduces the costs for exports.China in particular, has been the heart of global growth in Australia for the past 10 years, but unfortunately for Australia. China has started to feel the global slowdown. The biggest exports to China have been iron ore from...

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