Exchange Rate Policy Followed by Australia

• Australia follows floating exchange rate system from 1983

• The Australian dollar eventually floated in 1983, for a number of reasons. First, the fixed exchange rate regime made it
difficult to control the money supply. Like many other countries at that time, Australia targeted growth in the money
supply, under a policy known as ‘monetary targeting’

• With fixed exchange rate monetary targeting was difficult to achieve and therefore Australia adopted the floating rate
system

• The ability to gain greater control of domestic monetary conditions was well understood at the time as one of the key
benefits of floating the exchange rate, the decision to float in late 1983 occurred largely as a result of speculative
pressure on the exchange rate. That is, in the lead-up to the float, there were very large capital inflows coming into
Australia from speculators betting on an appreciation of the Australian dollar

• The RBA intervenes directly and indirectly to maintain the exchange rate and to minimise the effect of external shocks.

• From the second quarter of 2009, the Australian shows a strong increasing trend against US dollar. Firstly, such
increase may caused by the high commodity prices

• After mining exploration in Australia the exchange rate has improved significantly and Australian dollar has become
stronger than before.