The Australian Dollar – Fifth Most Traded Currency

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While the look of Australian currency reflects the nation’s rich heritage, its history reflects the dependence of other nations for Australian commodities.

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Before getting its official name, Australians in 1965 were bouncing around names like ‘the oz’, ‘the roo’ and ‘the kanga’ for their currency. The “royal” won over, but due to unpopularity of the name, Australian’s have been trading with dollars for close to 50 years. Inside of Australia it is abbreviated to a dollar sign ($) but will sometimes appear as A$ in order to distinguish it from other country’s dollar currencies.

In the foreign exchange market (Forex) the Australian dollar (AUD) is the fifth most traded currency around the world. Investors like the AUD because of Australia’s interest rates, economic stability and a freedom in the Forex market from government intervention. Colloquially known as the “Aussie”, the Australian currency is also favored due to its exposure to Asian economies and the commodities cycle.

Up until 1971 the AUD was at a fixed exchange rate, initially with the pound sterling before being pegged against the USD in 1946. When the Bretton Woods system broke down, Australian switched to a fluctuating exchange rate against the USD. As a floating currency, it has become one of the five most traded in the world, and is often known as the commodities currency due to the large number of natural resources exported by Australia.

Value and exchange rate of the Australian dollar

When first introduced in 1966, the Australian was at fixed rate under the Bretton Woods system, which had been established after World War II and governed almost all international currency rates. This exchange rate used the US dollar (USD) as its standard, yet the AUD was pegged to the pound sterling (GBP) at approximately the value of one gram of gold.

During the subsequent peg to the USD in the 1970’s, the AUD reached its highest valuation relative to the United States currency. The peg was adjusted to $1.487 USD on September 9, 1973 and on the 7th and 10th of December that year the AUD reached its high point of $1.488 USD. This rise in value can be partly attributed to a weakening United States economy as it struggled against the effects of the oil crisis.

10 years later, on 12 December 1983, the AUD was floated and its value determined by supply and demand on the international money markets. For the next two decades the AUD fluctuated against the USD, reaching a high point of $0.881 USD in December of 1988 and a low of $0.477 USD in April of 2001. There has been debate amongst economic analysts as to the causes of these swings in the value of the AUD, especially during the period of 1985 to 1986. In the mid ‘80’ the value of the AUD dropped as terms of trade dropped and the account deficit began to rise. Points of debate as to the reason for this center around strongly held views over the role of speculators, accumulating Australian account deficits, swings in the terms of trade and monetary policies.

One undeniable truth about the Australian economy and the value of its dollar is its dependence on a stable worldwide economy. Seen primarily as a commodities exporter, this often leads to large fluctuations in the value of the AUD due to a volatility of that market. This is seen in the early 1970’s, when a boom in commodity sales closed the gap between the AUD and USD considerably. During the early 1980’s, the AUD surged again when the OPEC oil prices rose, and investors began looking towards Australia’s rich natural resources.

In the mid ‘80’s investors reacted to that surge by fearing the price of the AUD had been overvalued, along with a sudden increase in the national debt. The GDP rose from 5% in the early ‘80’s to 14% in 1984. It again jumped to 25% for 1985, and by 1986 was at a staggering 34%. At the same time commodities prices began weakening, causing a 13% decline in the value of the AUD against the USD.

While the United States and the rest of the world began to falter economically in 2008, the AUD gained a significant amount of ground against the USD. Again, it was a boom in commodities coupled with an interest rate differential favoring the AUD that led to the surge, and allowed it at times to surpass the USD in value.

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History of the Australian Dollar

The Australian dollar was first introduced in 1966, using coins in denominations of 1,2,5,10,20 and 50 cents. In 1984 a one dollar coin was issued, followed by two dollar coin four years later. In 1991 the decision was made to discontinue the use of one and two cent coins, and these were taken out of circulation.

Paper currency was also printed for the first time in 1966, starting with 1, 2, 10 and 20 dollar bills. The following year a 5 dollar was introduced, but the 50 dollar bill did not enter circulation until 1972. Starting in 1988, the Reserve Bank of Australia began issuing polymer banknotes in order to celebrate the bicentenary of the first European settlers to Australia. Today, all Australian bank notes are made using polymer.

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Coins and banknotes of the Australian dollar

Only a few minor changes have been made to the coins and banknotes since they were first introduced to Australia. Although the one and two cent coins have disappeared, there are now one and two dollar coins in circulation as well as a hundred dollar bank note. Each bank note issued depict famous Australians from both the past and present:

  • $5 note. Her Majesty Queen Elizabeth II and the national capital
  • $10 note. Poets AB “Banjo” Paterson and Dame Mary Gilmore
  • $20 note. The reverend John Flynn and Mary Reibey
  • $50 note. Inventor David Unaipon and Edith Cowan
  • $100 note. Dame Nellie Melba and General Sir John Monash

The Australian Dollar

Australian coins also depict historical and geographical images:

  • Five cent coin. The echidna
  • Ten cent coin. A male lyrebird dancing
  • Twenty cent coin. A platypus, but is being replaced by Donald Bradman
  • Fifty cent coin. The Australian coat of arms
  • One dollar coin. Five kangaroos
  • Two dollar coin. An aboriginal tribal leader set against the Southern Cross and native grass trees
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