why is the $A depreciating? (1 Viewer)

[BackCountrySnow]

Are there any articles on the web suggesting why?

 

[michael1990]

I would put it down to:

• Volatility in the market
• and demand falling

 

[Enteebee]

The Australian currency is one which is particularly popular amongst currency traders i.e. forex. The reason for this is because Australia generally has high interest rates as well as a stable government with low regulations etc.

Now in times of volatility the Australian dollar will go down as people start selling it. The Australian currency is generally set up in a way which makes it quite strong in financial boom times and quite weak in down turns. Also atm our currency is in large part buoyed by commodity prices and they've taken a fairly substantial hit.

 

[moll.]

I would put it down to:

• Volatility in the market
• and demand falling

I'd say mostly the former.
Also, the general flee by speculators in the crisis as they all scrambled for safety in the form of US Government bonds probably played a part.
And we're a country that requires heavy investment, due to our low household savings ratio and population density, so when those investments get yanked out in a panic, it hurts. A lot.

 

[BackCountrySnow]

The Australian currency is one which is particularly popular amongst currency traders i.e. forex. The reason for this is because Australia generally has high interest rates as well as a stable government with low regulations etc.

Now in times of volatility the Australian dollar will go down as people start selling it. The Australian currency is generally set up in a way which makes it quite strong in financial boom times and quite weak in down turns. Also atm our currency is in large part buoyed by commodity prices and they've taken a fairly substantial hit.

But if the Australian economy is in a pretty good position (relative to the rest of the world atm) then why would people sell? what currency would they exchange the aussie dollars for?

 

[michael1990]

But if the Australian economy is in a pretty good position (relative to the rest of the world atm) then why would people sell? what currency would they exchange the aussie dollars for?

I suppose they would just exchange it for money. And stop speculating for a while.
Because our $ isn't as good as other countries. The Euro is still holding up okay.

 

[BackCountrySnow]

I suppose they would just exchange it for money. And stop speculating for a while.
Because our $ isn't as good as other countries. The Euro is still holding up okay.

lolwut?

 

[moll.]

I suppose they would just exchange it for money. And stop speculating for a while.
Because our $ isn't as good as other countries. The Euro is still holding up okay.

Dude, it already is money.

 

[Q2C-ME]

basically the resoning for the rapid fall in the Aus ($) has been idenitified by the RBA as the transition to a less restrictive monetary policy. If you browse the RBA's site their is this bulletin which shows how the preceeding hours leading up to the annual tuesday meeting the currency dropped by lyk 5cents within 24 hours (this further heighted the Aus exchange rate volatility index which is completly seperate concept)

okay post 100 basis point the exchange rate continued to depreciate, the justification for this is that higher interest rates, or more accuratly nominal intrest rates which basically minus inflation are attractive to investors due to the higher return, and both things i.e. 5% inflation whilst a lowering of intrest rates has meant lower return hence reduced finanical inflow for aus $ or more well worded reduced demand and subsequently your depreciation

now this has not been the only factor, the fact that international convergence and chinas (although not as high correlation with the US economys growth) has reduced its growth and seen a further slow down in infrastructure building means less need for raw materials which is reflective of the lower commoditity prices. Further resoning for the reduced demand for Au$

now their are other little nitty gritty factors such as less torusit due to lower disposable income internationally....their is this measure somewhere known as International APC which is a world bank measure, but this is the main stuff you need to know

but you have to remember, and this really isnt HSC economics my teacher was saying that some economists talks about like this "capped phenomna" where a currency hits a floor and a roof, which occurs in advanced economys like australia, my understanding of this isnt well developed but yea, something like that something happens cannot remember

 

[Q2C-ME]

one more thing....yes the AU$ has depreciated against the US$, but the TWI still remains relativlly unscaved umm i think its 60 down to only 56 over lyk a year, the change does reveal a depreciation however not as severe against the U$....but then again you have to remember that the TWI takes into account per amount of volume traded so for e.g. the AU and the YEN trade heaps, but in terms of FOREX their value is not that significant in terms of amounts of funds

and btw, id mention something about how speculators make up 95% of the market and e.t.c e.t.c....i think ive yapped on enough

 

[Enteebee]

also tbh the australian dollar hasn't dipped that much, the 10 year average I think is around 61c / usd.

 

[moll.]

Btw, this won't be in the exam anyway, cos it was set in like May, and the $AUD was still high then. And no, they can't just change it a few weeks out from the test.

 

[Q2C-ME]

let me clear your mis-conception

it wont be in the exam in the form of a question
however, any simple question to which a student is able to proivde the latest statistics reflects higher knowledge and hence higher marks. i went to this lecture day thingy and that teacher who taught the person who came first from pennat hills was their/senior hsc marker.

basically he said its very diffucult close to impossible to get a band 6 without an adaqute understanding of recent economic conditions

 

[BackCountrySnow]

Our interest rates are still high relative to the rest of the world.
Our economy is relatively stable, and now Ruddnip has proposed that bank deposit guarantee. You would think this would encourage speculators to invest in Australia.

 

[moll.]

They're speculators. Most of them are up to their eyeballs in debt. No real speculator puts his money in bank deposits, either, cos the returns are minimal, when compared to other forms of investment.

 

[BackCountrySnow]

Btw, this won't be in the exam anyway, cos it was set in like May, and the $AUD was still high then. And no, they can't just change it a few weeks out from the test.

They may ask something like 'Discuss the factors affecting the exchange rate of the Australian economy'

you would do better if you can apply the textbook theory to what is actually happening.

 

[BackCountrySnow]

They're speculators. Most of them are up to their eyeballs in debt. No real speculator puts his money in bank deposits, either, cos the returns are minimal, when compared to other forms of investment.

Whether speculators are up to their eyeballs in debt is irrelevant. It may reduce the amount of trading in FOREX, but not specifically in Australian currency.

Guaranteed bank deposits lift confidence in the economy. It's not just that speculators will deposit money into our banks, but when there is more confidence in an economy speculators are more likely to invest.

 

[moll.]

Whether speculators are up to their eyeballs in debt is irrelevant. It may reduce the amount of trading in FOREX, but not specifically in Australian currency.

It is relevant, because when the assets they hold (not inc. foreign currency) and the returns they're getting off them are decreasing in value, but their debt levels are remaining the same then they need liquidity in order to make up for the gap that has appeared, so they pull their money out of our currency whilst it was still high. Of course it isn't now, which is why the depreciation is slowing down.

 

[youBROKEmyLIFE]

Because it's a fucking fiat currency is the only answer to this question

 

[tau281290]

Our interest rates are still high relative to the rest of the world.
Our economy is relatively stable, and now Ruddnip has proposed that bank deposit guarantee. You would think this would encourage speculators to invest in Australia.

Yes our interest rates are quite high comparatively, but it also means it can fall quite fast, adding to the depreciation on the $A.

The bank deposit guarantee is not just in Australia, other countries have introduced them, including Hong Kong and Germany.