Currencies by Country:

Beginning Market Valuation of Australia’s Leading Bank: Macquarie Bank

The year ending January 2002 was the worst in the Australian dollar’s history. The Aussi became infamously known as the “Pacific Peso.” The Aussi’s future looked so baleful that he head of the Australian stock exchange, Maurice Newman, suggested that Australia relinquish the Aussi and adopt the US dollar. The value reached in 2001 was the lowest since the currency was floated in 1983. Since its inception it moved from 1.10 A$/US$ to 48 A$ / US $. A local bank predicted the currency would move still lower to 37 cents per USD. The Australian dollar moves with gold – gold went down. However, the Aussi went down relative to gold 28%! Major Australian companies such as Woodside Petroleum and even large banks were bid on by foreign competitors. The government actually had to intervene on Woodside’s behalf to stop the acquisition. In the stock market, the instability caused by the Aussi Dollar led to a bad year for IPO’s, 2/3 of them fell from their issue price. The poor exchange rate hit Australian travel agencies particularly badly, but was profitable for exporters who could pay workers in cheapened dollars. The deterioration of the Australian dollar in 2001 was precipitated by two types of factors: those originating within the country and those without.

Internally, the Aussi was plagued by inappropriate government policy. At a time when the currency was plummeting and confidence in Australia was low, the Federal Government insisted on low interest rates. They insisted on interest rates on a par with the US and ignoring the risk premium that the countries position demanded. In addition, foreign investors demanded reforms in industry policy. Reforms were needed to make the Australian economy profitable. The IMF suggested decoupling pensions from salary level and increased work participation from welfare recipients. Foreigners were simply not willing to invest in Australian companies until changes were made allowing them to be more profitable. In addition, the government had accumulated a high current account deficit, 4.5% of GDP. This, combined with the political risk factor of an election year did not make Australia an enticing investment for foreign dollars.

Australian Dollars have always been, to a large extent, tossed at the mercy of foreign affairs. In 2001, the Aussi was impaled by a strong USD. A global recession mired Australia’s chief trading partners, the US and Japan, leading to a lower price for gold. Australia was increasingly at the mercy of these global conditions because of its high foreign debt. Additionally, investors thought Australians would not be able to adapt to the new technology based economy and remain only capable of producing archaic raw materials. These factors combined to make Australia’s economic prospects for 2001 void of profit.

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