Economics: Aud/Usd During the Global Financial Crisis

Economics Essay Assignment – Topic 2

Since being floated in the early 80’s the Australian dollar has typically performed weakly against its more dominant intercontinental partner, the United States dollar. This mediocre track record can be attributed primarily to the strength of the US economy and their subsequent investment into Australian interests, resulting in a strong demand by the United States for our currency (www.rba.gov.au accessed 13th October 2009). However a series of events, culminating in the current Global Financial Crisis (GFC) had sent the American dollar spiralling into depreciation against the AUD, which continued to appreciate. Unfortunately this prosperity was short-lived, as the economic downturn eventually broke through the containment of the US markets and became a world wide crisis. The AUD has in the past 18 months experienced some of the most tumultuous movements in its history. The following report will analyse the circumstances that led to these movements and the future effects that they will have on the Australian economy.

The AUD has often been considered a “commodity currency” (http://studioforex.com accessed 13th October 2008) in that it has had a tendency to fluctuate in sync with commodity prices and the economic booms of other countries, in recent years the resource dependency of China has supported the strength of the AUD. The general consensus in the markets that the Australian Dollar is a currency that goes up the stairs and down the elevator holds very true. The RBA’s Trade Weighted Index further substantiates the movements over the past 18 months (Appendix 1). The events behind these movements were a series of chain reactions that ultimately have their roots in the economies as a whole, the resilience of the Australian’s and the disarray of the United States’.

Figure 1. (www.rba.gov.au accessed 13th October 2009)

The GFC hit hardest in the human resource departments of every business in Australia, with...