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The Australian dollar (AUD) is the official currency of Australia, replacing its original currency, the Australian pound. The pound was in circulation until 1966, when the Australian dollar was introduced and pegged to the US dollar (USD) with an official exchange rate of AUD to USD US$1.12. When the USD officially switched to a floating exchange rate regime in 1971, the AUD was temporarily linked to the sterling pound, then switched back to the USD by the end of the year. In December 1983, the AUD became a free-floating currency with all foreign exchange controls removed. Today, the Reserve Bank of Australia (RBA) maintains discretionary power and may intervene in the foreign exchange markets, although it does so infrequently.
Since the Australian dollar began circulating as the official currency, it has traded at a lower value against the US dollar, except for a two-year period from 2011 to 2013 when it traded at a premium. During this time, it reached a peak value of US$1.0770. Since 2000 its lowest conversion rate was US$0.5022. The average conversion rate over the last 15 years for the AUD to USD currency pair is US$0.7952.
The USD has historically been the stronger of the two currencies. However, as the effects of the 2008 global recession and subprime mortgage crisis spread throughout the United States economy, US markets faltered and the dollar’s value slipped. With a weakening American economy, the Australian dollar began to gain, due in part to a multi-decade commodity boom and an interest rate differential that favored the AUD. During this time, the Australian dollar gained significant ground against the USD, with investors spooked by high US debt levels and sluggish growth.
By February of 2011, the AUD to USD currency exchange rate had tipped in favor of Australia, with the conversion rate at US$1.0082. The AUD continued to climb throughout 2011, reaching its highest value in July, with the conversion rate at US$1.0770. It remained at an above-average level for most of 2013, though it dipped slightly below the US dollar at some points during the year.
By 2013, however, the US economy was gaining steam and the dollar was beginning to regain some of its lost value. Australia’s growth had begun to slow in 2011 and it was now evident that the Australian economy was cooling. Analysts cited the slow-down in mining and commodities investments, lower consumer spending, and weakening labor markets as major contributors to the decline in growth and the lowered outlook for Australia. The economy of the US, meanwhile, continued to improve. In 2014 it began to surge ahead, as consumer confidence increased and the employment rate ticked up. This was reflected in the stronger US dollar, as the conversion rate had flipped back in favor of the USD, with the currency exchange rate by the beginning of 2014 now at AUD:USD US$0.8861.
In the first quarter of 2015, the Reserve Bank of Australia announced that it would hold interest rates steady. While this should keep the Australian dollar’s value steady in the near-term, the long-term outlook for the AUD has turned slightly pessimistic, with forecasts pointing to an overall weakening of the AUD against the world’s major currencies.
The US dollar is heading in the opposite direction for the next several years, analysts predict. Most see an improving US economy that will gain steam in the coming years. The US dollar’s value is expected to continue climbing against most of the world’s currencies, including the AUD.
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