12 October 2008

Why is the Australian dollar so low if our economy is so strong?

This month marked the worst financial crisis for Australia, isn't it? With the decrease of interest rate and the depreciation of currency, Australia is certainly at a risk. With currency at 3.1 when I first came here in Melbourne in February, dad and mum had to turn a blind eye to buy the Aussie dollar to pay school fees. Even every parents did the same thing. When my elder sister came to Australia 8 years ago, it was 2.5. Now, it's 3.1. It makes a huge different when a big sum of money is dealt.

October, the month when I was born, seem to be a bad one for Australia. The big companies, especially, lived in fear. Governments and the PM had sleepless night to stabilize the country's economic growth. And..

the big news is here. The Aud currency has devalued. From 3.1 to 2.25. Australians were frustrated and sad, whilst, parents of many international students were jumping for joy for saving hundreds, or maybe thousands, for paying the uni fees.

Besides blaming this to the US financial crisis last month, why is the Australian dollar so low if the economy is so strong? Let Kochie (2008) explains this to you :

Why is the Australian dollar so low if our economy is so strong?
This is the case for two reasons. Firstly overseas investors see Australia as a big quarry, and as a result they link our currency to commodity prices. Because commodities have gone down, the Aussie dollar has also been marked down.

The second reason is overseas investors are pulling their money out. This is because of the drop in interest rates, which means investor money is getting a lower rate of return sitting in Australia. It's also because they're probably facing a bit of financial pressure at home, so they're moving their money home to help prop themselves up.


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