International Financial Market Report
Group name: EIO
Currency selected: Australian Dollar
Exchange rate being analyzed: AUD/USD
Names
1. Summary
a) Background
The Australian dollar is the currency of the Commonwealth of Australia, and the sign of it is $ and the code is AUD. The Australian dollar is a reserve currency, and it is one of the most traded currencies in the world. As of 2013, the Australian dollar is the 5th most traded currency in the world, accounting for 8.6% of the world's daily share. It trades in the world foreign exchange markets behind the US dollar, the euro, the yen and the pound sterling. The following graph shows the currency distribution of global foreign exchange market turnover:
And there are four reasons can explain why AUD is so popular with currency traders: 1) the high interest rates in Australia; 2) the relative freedom of the foreign exchange market from government intervention; 3) the general stability of Australia's economy and political system; 4) the prevailing view that the Australian dollar offers diversification benefits in a portfolio containing the major world currencies, especially because of its greater exposure to Asian economies and the commodities cycle.
b) Exchange rate policies
The Australian pound, introduced in 1910 and officially distinct in value from the pound sterling since devaluation in 1931, was replaced by the dollar on 14 February 1966.
Prior to 1983, Australia maintained a fixed exchange rate. The first peg was between the Australian and British pounds, initially at par, and later at 0.8 GBP. This reflected its historical ties as well as a view about the stability in value of the British pound. From 1946 to 1971, Australia maintained a peg under the Bretton Woods system, a fixed exchange rate system that pegged the U.S. dollar to gold, but the Australian dollar was effectively pegged to sterling until 1967. With the breakdown of the Bretton Woods...