Exchange Rates

• What is the exchange rate?

  Price/value of AUD when swapped for other currencies
• Measurements of exchange rates?

  Individual Exchange rates

  • value of AUD compared to other countries currency

  Trade weighted index (TWI)

  • value of AUD against basket of other currencies weighted by importance as our trading partners
• What type of Exchange rate does AUS have?

  Floating.

  • As its determined by supply/demand in FOREX
• if supply shifts right?

  AUD depreciates
• if supply shifts left?

  AUD appreciates
• if demand shifts right?

  AUD appreciates
• if demand shifts left?

  AUD depreciates
• Factors affecting AUD?


  Relative interest rates

  • if AUS has higher than other countries, more returns thus incentive to invest in AUS, so Demand for AUD increases

  Commodity prices

  • TOT decreases, AUS exports price decreases, so Demand for AUD decreases

  Foreign investment

  • capital inflow (investments) eg: shares, they need AUD so demand for AUD increases

  Relative rates of inflation

  • If AUD inflation < Trading partner inflation, exports increase thus demand for AUD increases

  Credit ratings

  • If our credit rating increases, more investment into AUD, so demand for AUD increases

  Speculation