Assignment Topic 2
AUD/USD Exchange Rate
The main movements of the AUD/USD exchange rate in the past eighteen months will be studied, as well as the underlying conditions that caused these specific movements to happen. Economic models and theories will be used to support the discussion and to analyse the reason for these fluctuations.
Discussion will then take place to whether these movements have been a help or a hindrance to the overall health of the Australian economy.
FIGURE 1.0
As seen above in Figure 1.0, the main direction of the AUD/USD exchange rate over the past eighteen months has been in a positive direction, shown here by a simple 15 day moving average over the price of the AUD in $USD.
FIGURE 1.1
Figure 1.1 above shows the four main fluctuations that have happened to the AUD/USD exchange rate in the past eighteen months that will be discussed in this essay.
To understand these movements, the demand and supply for these two currencies on the foreign exchange market has to be discussed.
FIGURE 1.2
The foreign exchange market concerning the AUD/USD is a flexible exchange rate system, and is determined by free market forces. Like any other free market, it can be modeled by the demand and supply graph, as seen above in Figure 1.2.
QUT Power Point Slide, Module 8, Tommy Tang, 2007_2
Fluctuations in the foreign exchange market occur from a change in either the demand or the supply for that particular currency, thus changing the price of the exchange rate.
The reasons behind the changes in supply and demand will be analysed for the four major movements noted in the exchange rate of the AUD/USD over the past eighteen months.
The first mo ...