Exchange Rate

[marbs]

Early this year the AUD was getting over 95 cents for the US dollar, but today it stands at 82.5.


Just for clarification;

Was it high, because of the booming economic conditions in Australia with the high demand form China and India, bringing more investors, demanding our currency and resulting in a higher rate.
 
Which added to the fact that the US economy was slowing down, and suffering low confidence.

Plus the high interest rates resulting in more confidence for investors

Why did it decrease to 82 cents?

All I can think of is maybe that demand for our commodities slowed down, and the US economy improved (but it didn't), and there was only a slight decrease in the cash rate.

[costargh]

I'd like an explanation too because I'd be crapping out of my ass if there was a question about the trend in exchange rates and I needed to comment on the fall.

From google
http://www.dailyfx.com/story/special_report/special_reports/Why_is_the_Australian_Dollar1217944652882.html
http://www.forextradinghq.com/major-currencies/australian-dollar-weakens-on-falling-stocks.html

[AppleXY]

- The RBA has injected mass amounts of cash into the economy (in particular, in banking) which decreases the the AUD index.

And interest rates did go down, thus, investors are shorting the currency due to the high probability of another interest rate cut very soon.

[costargh]

Sorry this might sound like a stupid question but what is the correct way to express the Australian dollar? Like exact way...

Just like 78 U.S cents?

[ReVeL]

I believe so, 1 Australian dollar buys .78 US dollars, or 78 US cents.

[AppleThief]

- The RBA has injected mass amounts of cash into the economy (in particular, in banking) which decreases the the AUD index.

Why did they do that? Wasn't there a 21 billion dollar budget surplus designed to take money out of society?

(This is from someone who doesn't know much about economics, so sorry if this question is silly)

[costargh]

I think it was to try and allay fears that there would not be enough credit availableto meet demand by businesses and households??? :S

[marbs]

I think they know that the US, European and Japanese Market crisis, will have a serious effect on confidence, and willingness to invest, so they wanted to kickstart the economy, after it was posting lows.

I think Australia injected 2.8 billion or something
Japan over 21 billion

and US is planning to inject $700 Billion (US), added to that tax cuts (?).... this shows the seriousness and how what Australian is going through is nothing, and we are relatively stable.

[costargh]

and US is planning to inject $700 Billion (US), added to that tax cuts (?).... this shows the seriousness and how what Australian is going through is nothing, and we are relatively stable.

Isn't this totally differnt? :S

Isn't the US bailout just the US government buying mortgage related assets from the bank while the Australian cash injection ... (actually to be honest I dont know anything aboiut the Australian cash injection, what it entails and what it means...) explain?

[AppleXY]

They injected mass amount of cash to keep the markets liquid and to stimulate credit competition.  Also the government bought A-grade bonds which is also designed to stimulate competition in the financial services sector.

The revised TARP (troubled assets relief plan) [around $750 bn, can't exactly remember] includes sweetners such as tax cuts and increased insurance from the FDIC (which secures deposits worth upto $100,000 now to $250,000) and others. It's been approved in congress but has to be approved by the house of the representatives.

For the representing the value of the Australia dollar;

As exchange rate is the value of one currency against another there's no "absolute" value for it, only "relative" values for it. It's mainly measured against the United States Dollar (AUD/USD) or the TWI (Trade Weighted Index) which is an index that measures the value of our currency compared to a basket of currencies of our trading partners.

[costargh]

yeh but what does injected mean? It obviously isn't literal so in what sense is it injected.

[marbs]

I thought the US was a bailout where half were negotiated to buying bad debts, but there were also injections, like the NAB thought they were going to receive money because they had bought sub prime.

The injections meaning, putting money into the economy in the sense that it will increase the supply of money, making it easier for people to get credit and giving more money.



Hell, this could all be wrong, I got to do some reading

[costargh]

Buying bad debts and buying mortgage related assets are the same thing I think. I think of it this way. With so many houses being repossessed in America due to the sub-prime mortgage crisis, the banks have been trying to sell these houses or premises (plural?). This has resulted in an oversupply of housing in America which has brought the equilibrium price down meaning that some of the loan that the banks gave out cannot simply be reclaimed through selling the premises because they a) can't sell them cause no one wants them, b) don't want to sell because they will be making massive loses on their loans they gave out.

I think the government plans to buy these "bad debts" (houses) off the banks so they don't lose money.  Um that could be totally wrong and I knwo it gets more complicated than that for businesses etc but for the general American who got a loan for their house would that be correct?


Yeh I know that. But how do they put money into the economy? Do they throw it onto the streets? Do the drop it from a plane? etc lol

[AppleXY]

Yeah, the government will have access and control to the "toxic assets" from the corporations. But it also includes sweetners as I mentioned earlier.

He injected $4bn into the non-bank mortgage sector by purchasing AAA mortgages, thus giving a such for the smaller instutions to gain an advantage in competition (due to lower interest rates for them, govt is the owner --> paid 4bn, injected into the economy), thus becoming much more competitive in the mortgage market.


Btw, costa, generally to "put" money into the economy is from Open Market Operations (OMO). If the RBA purchases a large number of second hand securities, this will inject money into the economy as the bank is paying for the securities in the open free market. However, if the RBA sells second hand securities then this reduce the amount of cash avaliable in the economy as the free market has bought the securities for cash.

[costargh]

thannk-you. i remmeber seeing that on the news. AAA- i thought batteries when i saw it