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Recent Trends in the Exchange Rate

Economics (Year 12) - Exchange Rate

Christian Bien

Recent Movements in the Exchange

Data Source: Reserve Bank of Australia, Exchange Rates (July 2021).

The above chart shows the recent trends in the exchange rates between Jan 2000 to July 2021 (blue) as well as the commodity price index during this time (red). Below shows the notable movements in the exchange rates.

Pre-GFC Boom (Appreciation)

Australian Dollar reached a peak of $0.98 USD. Appreciation mainly due to increases in world economic growth increasing demand for Australian exports. During this time, the RBA Commodity price index reached a peak of around 135.

Global Financial Crisis (Depreciation)

Australian dollar depreciated from $0.98 USD to $0.63 USD (a decrease of 36%). Depreciation mainly due to decreases in world economic growth and increased global uncertainty, decreasing demand for Australian exports - in particular, prices for commodity exports fell sharply as shown in the RBA commodity price index which fell from 135 to 90.

Mining Investment Boom (Appreciation)

Australian dollar appreciated from $0.63 USD to around $1.10 USD (an increase of around 75%) Appreciation mainly due to Chinese economic growth increasing demand for Australian commodity exports. International capital flows diverted into Australia to capitalise on high commodity prices and the state of Australia's growing economy while other major economies were still recovering from the GFC. The increase in exports and foreign investment increased the demand for the currency, causing an appreciation. Supply of the currency also slightly increased as foreign investment was used to finance capital imports, an increase in a debit transaction.

Post Mining Boom (Depreciation)

Australian dollar depreciated from $1.10 USD to $0.72 USD. Depreciation mainly due to the slowdown in Chinese economic growth, decreasing demand for Australian commodity exports and slowing foreign investment into Australia. Lower exports and lower foreign investment has decreased credit transactions and hence demand for the currency, causing a depreciation.

COVID-19 Pandemic

Despite a surge in commodity prices past 140, the exchange rate has failed to appreciate significantly, rising from a trough of 0.62 USD to around 0.74 USD. This increase has not been significant alike previous increases, potentially due to the economic growth of other major economies such as China, United States and Europe upon the exit of COVID-19.

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