The official currency of the Commonwealth of Australia, the Australian Dollar, is said to be one of the most colorful currencies of the world. The Australian currency holds the 5th position amongst the world’s most traded currencies. Australia was the real inventor of ‘Plastic Money’. Back in 1988, to fight counterfeiting, the country decided to use polymer instead of papers for their banknotes. 100 cents make one Australian Dollar.
Something Facts That We Bet You Did Know About The Australian Currency:
1. The short name for the Australian Dollar is AUD currency.
2. The most frequently used coins are A$1, A$2, 5C, 10C, 20C, and 50C.
3. The Australian coins feature the platypus and echidna, the two unique mammals which lay eggs.
4. Although its officially called the Australian Dollar, locals prefer calling their currency ‘Aussie’
5. The most commonly used banknotes include A$5, A$10, A$20, A$50, and A$100.
6. States that accept the AUD currency as a part of their legal tender include Norfolk Island, McDonald Island,Heard Island, Coral Sea Island, amongst others.
History of Aus Dollar
The Australian dollar, AUD, is the official currency of Australia and is widely recognised around the world as an important currency in the global financial system. Its history dates back to the early 1800s when Australia was still a British colony.
In the early years of the Australian currency system, there was a lack of uniformity and standardisation. Various British coins were used for transactions, which led to confusion and inconvenience for merchants who had to deal with a wide range of denominations and values. To address this issue, the British government introduced the Australian pound in 1910, which brought greater stability and uniformity to the country's currency system.
The Australian pound was pegged to the Great Britain pound and was divided into 20 shillings, each consisting of 12 pence. However, the Australian pound was not without its problems. In the 1930s, Australia was hit hard by the Great Depression, leading to a decline in the country's economic output and a devaluation of the pound. To stabilise the currency, the government pegged the pound to the US dollar in 1966.
The peg to the US dollar remained in place until the 1970s when the Australian government decided to float the currency. This meant that the value of the AUD was determined by the market forces of supply and demand, rather than being fixed to the price of another currency. The floating of the AUD led to significant fluctuations in its value, as the currency was subject to changes in global economic conditions and market sentiment.
In the early 2000s, the AUD experienced a period of strength as demand for Australian commodities, such as iron ore and coal, soared. This led to a surge in the value of the AUD, which reached parity with the US dollar for the first time in decades. However, the AUD also faced challenges, such as the impact of the global financial crisis of 2008, which caused the AUD to fall sharply against other major currencies.
Despite these challenges, the AUD has remained an important currency in the global financial system, due to its role as a major commodity currency and its popularity among investors and traders.
Factors Affecting Aus Dollar Currency
The value of the Australian dollar is subject to changes due to various factors, including the following:
1. Interest rate differentials
The difference in interest rates is one of the main factors influencing changes in the value of the AUD. When a country's assets are preferred by an investor over those of another, this is referred to as the relative benefit. If interest rates are lower in Australia than in other nations, investors may choose to invest in those nations to earn higher returns, which could cause the value of the AUD to decline.
2. Commodity prices
The AUD has a long history of being closely correlated with the values of Australia's main exports of commodities, earning the label "commodity currency." This is because Australia's trading partners must purchase AUDs in order to buy Australian exports, which may have an impact on the value of the currency.
3. Purchasing power parity
According to the concept of purchasing power parity, an exchange rate is said to be in equilibrium when it represents the price difference between a basket of commodities in two different economies. Despite being a not-so-perfect model, it argues that a currency pair should err on the side of its purchasing power parity. The well-known Big Mac Index, which is regarded as a benchmark for the Australian dollar, currently indicates that the AUD is overvalued in comparison to the US dollar.
4. Government credit ratings
The credit rating of the Australian government may have a small effect on the AUD. This is so because Australia's credit rating affects the debt's risk profile, which directly affects the interest rate the government must pay on its debt. An unfavourable credit rating makes it riskier and less appealing to buy a country's debt, which lowers the demand for its currency in general. Although it hasn't been an issue recently, the AUD has in the past seen short-term volatility as a result of situations that threatened Australia's AAA credit rating.
5. Sentiment and speculation
In the international financial markets, the AUD is frequently used as a growth and risk proxy, making it a barometer and trading tool to profit from short-term shifts in perception toward global economic growth and market risk. The Australian economy is quite vulnerable to variations in the level of global economic activity because it is a commodities currency. So, the AUD will often rise when there is a generally upbeat mood in the market, whereas the AUD will frequently decline when there is a general downbeat mood.
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