Australian dollar boom
What are the factors which have caused the relative strengthening of the Aussie Dollar?
The Australian dollar gains its highest level in more than five years. In April 2001, the Aussie dollar began the climb from a low of US Dollars 0.479. In July this year, it peaked at US Dollars 0.687. This climb that the Aussie dollar is in is happening due to many factors, some of these factors are internal that happened due internal causes such as:
• Government policies.
• Strong Housing cycle.
Or due to external factors which are factors that are caused by policies of countries that are directly related to the Australian economy or global or regional markets
• Government policies
The RBA “Reserve Bank Board” major responsibilities are to determine the banks monetary and banking policies. However, since banks are considered a key player in money exchange within the economy that is due to the facts that majority of businesses and people deposit at banks and so with those deposits, the banks overall behavior can influence the quantity of deposits in the economy and there for the money supply. So the RBA major job is to determine monetary policy for the banks and the overall banking sector.
What monetary policy means is the management by the central bank of liquidity conditions in the economy. That is the price and availability of funding for the economy’s expenditure. The objectives of monetary policies are to contribute stability of the currency, the maintenance of full employment, and the economic prosperity and welfare of the people of Australia. (J.Gans, S.King, R.Stonecash & G.Mankiw, 2000)
The long-run objective of monetary policy is to influence the rate of growth in the economy and the level of prices. When the overall economic growth is too fast, this put pressure on prices so the RBA will implement a tightening of monetary policy to slow the economy. But when the economy is experiencing slow growth, the RBA will implement expansionary monetary policy.
However, the RBA influence the liquidity or the amount of cash in the economy by buying and selling government securities. If the RBA decides to change the amount of cash in the economy, it can either purchase government securities from financial institutions or sell them to financial institutions in the nation’s bond market.
Such policies like monetary policy the RBA conducts within the economy, this is considered an important cause to the strength of the overall dollar power within the economy and overseas markets. When the RBA control the liquidity of money within the economy, that for sure would increase the credibility of the overall Australian market and so that would attract overseas investments that is due to the stability within the economy and the country currency.
Fiscal policy is the use of government taxing and spending powers to affect the behavior of the economy. The economy's total output, income and employment levels are directly related to total private and public spending or aggregate demand. [next page]