The Australian Dollar has had a long history of trying to keep up with its American big brother.
Up until 1966, Australians made their purchases using pounds, shillings and pence when a new currency was introduced. Initially known as the “royal”, the name was eventually dropped for the more popular “dollar”. The rate of conversion for this new currency was two Australian Dollars (AUD) for each pound.
The AUD is the fifth most commonly currency traded in the world as of 2011, behind the US Dollar, euro, yen and the pound sterling. Currency traders prefer the AUD, which is sometimes referred to as the Aussie, because of the comparatively high Australian interest rates, lack of government intervention in the foreign exchange market and the stability of the nation’s economy and political system. Also, it provides diversification in a trader’s portfolio with a larger exposure to the economies of the Asian nations and commodities cycle.
The USD has been the currency in the United States of America since 1786, and is now the most widely recognised currency in the world. The AUD has always traded for a lower value than the USD, except between the years 2011 and 2013 when it was trading at a premium rate. The highest it reached during that time period was $1.077 USD for every $1 AUD. On average over the last 15 years, the currency pair has been $0.795 USD for each $1 AUD with the lowest conversion rate being recorded at $0.502 USD.Back to top
The USD has historically been stronger compared the AUD
Even before the inception of the Australian Dollar, the USD has historically been stronger. Since 1944 and the end of World War II the USD has had a dominance in world economics. Used to convey the value of other currencies, the USD is the most widely traded in the exchange market and historically the strongest.
This changed briefly after the 2008 global recession, when subprime mortgages almost destroyed the United States economy. During this period of a weak US economy, the AUD gained value. This was also due in part to a multi-decade commodity boom and an interest rate differential which worked in favour of the AUD.Back to top
The US Dollar fluctuates against a weaker Australian Dollar
In 2011 the AUD was able to surpass the USD in value for the first time in history. It climbed throughout most of that year, reaching its high of $1.077 in July. This trend continued through 2012 and most of 2013, although it did drop slightly below the USD before resuming its normal trend of always being lower in value. The United States economy had begun to improve, as Australia’s was starting to slow down. Lower consumer spending and a slowing down of internal investments is blamed for the shift in Australia. By the beginning of 2014, the exchange rate was recorded at $0.8861 USD.
Analysts predict that the USD will continue to increase in value over the next several years as the United States economy continues to show improvement. The expectation is that it will continue to climb against most of the currencies around the world, including Australia’s. It is also predicted that the AUD will continue to weaken against those same worldwide currencies, despite the announcement in early 2015 that the Reserve Bank of Australia would continue to hold interest rates steady.