Australia and its exchange rate

Exchange rates play a key role in the relationships between individual economies within the context of the global economy, as all trade and financial flows between nations are mediated through exchange rates. With respect to Australia, the foreign exchange rate is simply the price at which the domestic currency exchanges for another foreign currency, and the conversion of these currencies takes place on the FOREX market where through market forces of demand and supply, buyers …

…of payments, the RBA and government must also occasionally manage the exchange rate if it views there a need to do so. As a 'hot' currency and from the increasing levels of financial flows since the 1980s, Australia's exchange rate is subject to severe fluctuation by investors in the short term. Because of these increasing fluctuations, the RBA must continue to intervene in the exchange rate in order to maintain relative stability of the economy.