Aussie dollar not alone in its woes

The experience of the Australian dollar paralleled that of most major currencies in the past three years, as capital flowed into U.S. markets and into greenback-denominated investments. The Aussie averaged US58.2 in 2000, down from an average of US64.5 in 1999.

With commodity prices low and a low-interest policy in place at the Reserve Bank of Australia, it was quite reasonable to see the U.S. dollar as heavily overvalued against the Aussie. So a number of producers hedged their foreign currency holdings at around US65 to the Australian dollar.

But from US56 at the beginning of 2001, the dollar’s slide continued. By the beginning of April, it reached bottom, at US48.3 — down 38% from its average of US78.3 in 1996.

Against a backdrop of continued rate cuts in the major economies, the Reserve Bank continued to keep Australian exports cheap and prop up domestic demand. It has since clawed back to US52.1, so some of the pain has eased, but the effect has shown in several companies’ results.