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Exchange Rates (1 Viewer)
- Thread starter Sarah
- Start date
John Garnault said in the book that Gittins released - Australian Economy 2002 - that recent deprecitations are due to the herd mentality of investors - there's nothing especially sensible or logical about the movements. Long term, it's thought to be because of high inflation and worsening terms of trade (and investors again, who haven't picked up on the recent facts that we don't have high inflation any more, and that the terms of trade have improved).
sif not 99
Member
SPECULATORS, as well over 90%, i think as much as up to 97% of currency is traded by speculators u can prolly blame them
p00_p00
Member
Id have 2 agree about the speculators - HOWEVER the speculation/herd mentaility has gone on for WAY 2 LONG! SInce the $AUDs float, we have lost over 40% of the value of our currency in terms of the $US. However if u look at our recent CAD problems (IE past 5 years) our X have increased significantly regards to our imports. Also Australia has some of the highest economic growth levels in the DEVELOPED world, with a very stable level of inflation and moderate productivty levels. HOWEVER we could do with a rise in interest rates to boost the value of the $AUD a bit (would be VERY useful if done b4 i go to HK at the end of the year 
) but our problem with a low $AUD cannot be summed up in a few words such as herd mentality etc. Many Analysts have said the $AUD is "severely undervalued" and with all these factors i have listed, the low $AUD has been caused by a freak of nature if u ask me.
) but our problem with a low $AUD cannot be summed up in a few words such as herd mentality etc. Many Analysts have said the $AUD is "severely undervalued" and with all these factors i have listed, the low $AUD has been caused by a freak of nature if u ask me.kaseita
Member
whilst the $AU is definitely undervalued, it nevertheless allows the australian economy to perform strongly and competitively against our competitors. Amongst the OECD countries, Australia has the highest economic growth.
having a low $AU isn't bad. of course, you don't want it too low, which is why the RBA is suspected of interfering with the markets when it gets too extreme.
its kinda funny that the only reason the $AU rose a few months back, was because all the speculators were getting out of the $US dollar for a little time, causing the $AU to appreciate.
having a low $AU isn't bad. of course, you don't want it too low, which is why the RBA is suspected of interfering with the markets when it gets too extreme.
its kinda funny that the only reason the $AU rose a few months back, was because all the speculators were getting out of the $US dollar for a little time, causing the $AU to appreciate.
the great one
Member
- Joined
- Aug 5, 2002
- Messages
- 40
firstly there are viewed structural deficiencies in th aus economy in that we rely on turism and primary product exports rather than etms.
secondly it is not only the fact that the aus was weak it is that the us dollar is strong in these uncertain times.
secondly it is not only the fact that the aus was weak it is that the us dollar is strong in these uncertain times.
B
Bambul
Guest
It's far too difficult to answer such a broad question like why the AUD is so undervalued without going into great depth, but I'll try to give a brief overview.
According to The Economist's "Big Mac Index" (which works on the principle of purchasing power parity) the fair value of the AUD is US$0.86 (assuming a Big Mac costs A$3 and US$2.59). Also, the average of the AUD from 1986-2000 was US$0.73.
Both of these point to a very large undervaluation of the AUD compared to the USD. However, when compared to all other currencies, excluding the yen, the AUD has remained faily stable since the early 1990's. So the quick answer is that the AUD is low because the USD is high (which it is), which occured during the late 90's when the world was "in love with all things American" during which the USA experienced a triple boom in its economic growth, it's sharemarkets and its currency.
It should be considered that from a historical perspective, Australia's current economic condition (superior economic growth, a strong terms of trade, falling unemployment and a good control of limits to sustainable growth - inflation and trade balance/CAD) would normally have meant that the AUD would be moving up strongly.
Also, keep in mind that a low AUD is not necessarily a bad thing. It makes Australian goods more competitive against foreign goods and this leads to stronger economic growth. And due to microeconomic reforms, in particular labour market deregulation and the tarrif phase-down, have put pressures on firms to absorb increases in costs rather than pass them on, thus keeping inflation low.
I hope that helps!
According to The Economist's "Big Mac Index" (which works on the principle of purchasing power parity) the fair value of the AUD is US$0.86 (assuming a Big Mac costs A$3 and US$2.59). Also, the average of the AUD from 1986-2000 was US$0.73.
Both of these point to a very large undervaluation of the AUD compared to the USD. However, when compared to all other currencies, excluding the yen, the AUD has remained faily stable since the early 1990's. So the quick answer is that the AUD is low because the USD is high (which it is), which occured during the late 90's when the world was "in love with all things American" during which the USA experienced a triple boom in its economic growth, it's sharemarkets and its currency.
It should be considered that from a historical perspective, Australia's current economic condition (superior economic growth, a strong terms of trade, falling unemployment and a good control of limits to sustainable growth - inflation and trade balance/CAD) would normally have meant that the AUD would be moving up strongly.
Also, keep in mind that a low AUD is not necessarily a bad thing. It makes Australian goods more competitive against foreign goods and this leads to stronger economic growth. And due to microeconomic reforms, in particular labour market deregulation and the tarrif phase-down, have put pressures on firms to absorb increases in costs rather than pass them on, thus keeping inflation low.
I hope that helps!
p00_p00
Member
wow a real lecturer or pro at this site????
Well i still have 2 say that the $AUD is undervalued and is unexplained. Good eco health as well as an extremely good terms of trade should bring about high demand for the $AUD...... WTF is goin on?????
Well i still have 2 say that the $AUD is undervalued and is unexplained. Good eco health as well as an extremely good terms of trade should bring about high demand for the $AUD...... WTF is goin on?????
B
Bambul
Guest
The foreign exchange markets are very irrational. They follow no set logical or reasonable rules or principles.
Whilst the longrun exchange rate can be estimated through methods such as the ones I outlined in my previous post, the shortrun value of the exchange rate is driven primarily by market confidence and herd mentality.
Many countries maintain a pegged currency for this reason. Countries such as China/Hong Kong or Taiwan and until recently countries such as Argentina or Thailand have had such pegged currencies. Of course, this can have it's own problems as seen by the Asian Financial Crisis or Argentina's recent economic meltdown.
Whilst the longrun exchange rate can be estimated through methods such as the ones I outlined in my previous post, the shortrun value of the exchange rate is driven primarily by market confidence and herd mentality.
Many countries maintain a pegged currency for this reason. Countries such as China/Hong Kong or Taiwan and until recently countries such as Argentina or Thailand have had such pegged currencies. Of course, this can have it's own problems as seen by the Asian Financial Crisis or Argentina's recent economic meltdown.
sif not 99
Member
Big Mac Index Owns
go "The Economist Magazine" whata mad read
go "The Economist Magazine" whata mad read