The Australian dollar is known as a commodity currency because it is sensitive to fluctuations of commodity prices. Although the structure of Australian production has historically moved from the primary commodities to manufacturing and services, market expectations of the currency are still strongly influenced by the variation of the commodities’ prices. Recent evidence show that the Australian dollar has fluctuated in response to the growth of the Chinese economy. The empirical results from this study show that commodity prices as represented by oil price changes and the growth of China’s economy are the most important variable influencing the Australian currency.
Category - John LODEWIJKS
University of New South Wales, Australia
S P Jain School of Global Management
There is now considerable disquiet about the appropriate monetary strategy that central banks should follow in the aftermath of the global financial crisis. Several influential commentators have called for the abandonment of inflation targeting. Empirical research examining three major economies demonstrates that inflation targeting was effective prior to the crisis and a more flexible form of targeting may still be appropriate after the crisis.