The facts behind our dollar’s daze

THE performance of the Australian dollar against the US dollar since the start of this year has been ordinary at best. How much has it declined?

The Australian dollar has fallen around 5 per cent against the greenback since the start of the year. However, the Aussie has actually fallen by 8 per cent if you measure it from the highs of US57 cents on January 5.

Is this much more than the decline of other currencies against the US Dollar?

We have tracked 130 currencies in terms of movements against the USD since the start of the year. While it is early days still in 2001, the Australian dollar has recorded the third largest decline against the US dollar.

What about the performance of the Australian dollar against some of the other currencies around the world?

The Australian dollar has fallen against all major currencies since the start of the year, including 3.6 per cent against Japanese yen, 3 per cent against euro, 2.4 per cent against NZD, 1.9 per cent against Swiss franc and 1.8 per cent against sterling.

How has the Aussie traded against the TWI?

The Australian dollar is down 4.1 per cent on a trade-weighted basis since the start of the year.

Why has the Australian dollar performed so poorly?

Basically due to US dollar strength, softer commodity prices, and weak gold price and only modest yield attraction.

What do you anticipate the dollar to be doing during the rest of this year?

On “fundamentals” we expect the Aussie to strengthen, largely in the second half. The fundamentals include wider interest rate differential in favour of Australia, smaller current account deficit and expectation that stronger world growth will lift commodity prices. The main obstacles are the continued strength of the US dollar and political uncertainty related to the Federal Election. We see the Aussie at US60-63 cents by the end of the year if “fundamentals” rule. Unfortunately, in 2000 this wasn’t the case and global fund preference for the US dollar may again dominate.

We often hear suggestions bandied around that we are the fifth highest traded currency in the world? Is this the case and is this a contributing factor to the volatility of our dollar?

The Australian dollar is actively traded but the currency is no more volatile than other major currencies such as yen, euro, sterling and Swiss franc.

There is a die-hard element of readers of this journal and column that extol the virtues of a fixed exchange rate as opposed to the so-called “Dirty float” that we have. Can you see any reasons for change and what were the reasons for the float in the first place?

A floating exchange rate means that the currency can fluctuate with changes in the world economy. For instance, a low and thus competitive currency insulated Australia from the worst of the Asia crisis. A low dollar now is supporting exports in an environment when world economic growth is slowing.

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