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Briefly describe the movements in the target cash rate from 2001 to 2017. How has the...

Briefly describe the movements in the target cash rate from 2001 to 2017. How has the movements in the cash rate influenced the value of the Australian dollar in the foreign exchange market?

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Answer #1

Solution:

I have taken the data of cash rate and three major currency USD, Euro and GBP and analyzed the exchange rate with Australian dollar.

It is evident the data that the Average cash rate has declined since 2001 as it was around 5% and now it is around 1.5%. This decline is cash rate means a boost for the investments as lower interest rate increases the investments and lowers the savings. FDI and FPI must have increased, and this led to higher demand for Australian currency. Hence Australian Dollar has appreciated in this period.

The Australian dollar has appreciated in this period against these three major currencies. These can be seen from the data given below.

Exchange rate is as follows

1GBP = 2.80 AUD in 2001, 1 USD = 1.95 AUD, 1 Euro = 1.74

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