Forty years of floating
Plus, the RBA’s new Statement on the Conduct of Monetary Policy
Today is the 40th anniversary of the float of the Australian dollar, announced at a 5pm press conference on Friday 9 December 1983 (pictured above). The exchange rate was market-determined from Monday 12 December 1983. This is the op-ed I wrote for the AFR on the occasion of the 30th anniversary of the float, which still holds up well.
As noted here previously, the traditional shock absorbing role of Australia’s floating exchange rate has now diminished as the US has been transformed by its oil exports into a net commodity exporter, turning the US dollar into a commodity currency. The US became the world’s biggest oil producer in 2018 and US oil output posted new record highs in September. The US accounts not only for all the growth in the global oil supply this year, but over the last decade as well. Under a second Trump presidency, it is not hard to see the US becoming an even bigger petro-state, with political institutions to match. With the correlation between the AUD and commodity prices weakening, Australia will be more exposed to commodity price shocks in future and its economy will be more cyclical as a result.