Trade Weighted Index (1 Viewer)

[underthebridge]

Does a decline in the trade weighted index indicated that the AUstralian dollar has appreciated against the basket of currencies? Or does it mean that the Australian dollar has appreciated?

 

[Freaky]

I assume a decline means it has depreciated...

Thats only an assumption going of common sense, someone know the answer?

 

[gorgo31]

A decline in TWI would mean that the $AUD is worth comparatively less against the basket of foreign currencies (weighted accordingly) than it was previously.

...I think

 

[Jago]

I agree with gorgo

 

[black_man]

might it be that the TWI (a weighted basket of other currencies) falling is a reflection of these currencies depreciating? which might be an indicator of a slowdown in global activity? I haven't ever really been confronted with a question like that, so it is only an assumption

 

[enigma~]

Does a decline in the trade weighted index indicated that the Australian dollar has appreciated against the basket of currencies? Or does it mean that the Australian dollar has appreciated?

It depends. The TWI weighs the countries we trade with in order of trade volumes, it does not take into account what currency transactions are traded in. So while the TWI may appear to decline this may not necessarily mean that the Australian dollar has depreciated in relation to other currencies. Because majority of transactions occur in $US/$A the US currency needs to be given a larger weighting. In 2001 while the US dollar depreciated, the Aussie dollar increased slightly but because the US dollar constitutes a large weighting on our TWI, this made it appear that the $A appreciated greatly. It is therefore possible that for our TWI to increase while the Aussie dollar is appreciated and deprectiating against other currencies. In general, however, a decline in the TWI means that Aussie dollar has decpreciated against other currencies.

 

[underthebridge]

Well basically because of the weightings, it shows the impact of a depreciation or appreciation on australia's trading activities. So if the TWI declines I'll just say the $A has depreciated. I saw a question involving movements in the TWI in the short answers for the 2003 HSC.