Essay on The Currency Of The Australian Dollar

1235 Words Jun 7th, 2016 null Page
The exchange rate is the value of one currency for the purpose of one conversion to another. These transactions occur in the FOREX market and is considered floating when the exchange rate is determined by the interaction between demand and supply. For this reasons, exchange rate movements have a significant impact on international competitiveness, trade flows, investment decisions, inflation and many other factors in the economy.

Under Australia’s floating exchange rate system, the value of the currency is determined by the interaction of the forces of demand and supply In the market place which determine an equilibrium value for the currency. Demand for the Australian dollar is determined by the perceptions of speculators about future $A movements, changes in interest rates, and the demand for Australian exports, which ae in turn is influenced by the level of economic growth in Australia’s trading partners and commodity prices. Supply of the Australian dollar is determined by the perceptions of speculators about future $A movements, changes in interest rates and demand for imports, which are in directly influenced by consumer spending in Australia.

Recent movements in the Australian dollar have seen a depreciation. Due to Australia’s slowing economic growth and expansionary monetary policy Australia recent depreciating trend from the 2011 (mining boom) has seen the AUD fall from $1.10 to $0.72. With a record low cash rate of 2.0%, serving to reduce interest rate…

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