Study on the Impact of Australia’s Monetary Policy on the Foreign Exchange Market

DOI

10.2991/978-94-6463-246-0_18How to use a DOI?

Keywords

Australia; Monetary Policy; Foreign Exchange Market; Currency

Abstract

Through a replication analysis, this paper continues to explore the impact of Australia’s monetary policy on the foreign exchange market. The data references are drawn from the same financial literacy literature as the Reserve Bank of Australia (RBA) and Datastream by Thomson Reuters/Refinitiv. In addition to the data provided by the financial literacy literature, historical data on the exchange rate of the Australian dollar against major national currencies provided by the RBA are also used. The evidence suggests that, similar to the equity markets, the RBA’s monetary policy do not have an information effect on the foreign exchange market. The results support standard economic thinking: a rise in the interest rate leads to a rise in the Australian dollar exchange rate against major countries’ currencies. However, central banks are now becoming aware of the nature of expectations management in monetary policy. And the RBA’s behavior of increasing policy transparency and openness, and communicating with the market about monetary policy and the economic outlook, can be a good way to stabilize equity and foreign exchange markets. Although the literature on financial literacy is limited, the factors affecting the foreign exchange market do not stop at the single factor of monetary policy. The interest rates and exchange rates present a stronger correlation, with interest rates providing a better explanation of exchange rate movements.

Copyright

© 2024 The Author(s)

Open Access

Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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TY  - CONF
AU  - Xianming Chen
PY  - 2023
DA  - 2023/09/26
TI  - Study on the Impact of Australia’s Monetary Policy on the Foreign Exchange Market
BT  - Proceedings of the 3rd International Conference on Economic Development and Business Culture (ICEDBC 2023)
PB  - Atlantis Press
SP  - 158
EP  - 165
SN  - 2352-5428
UR  - https://doi.org/10.2991/978-94-6463-246-0_18
DO  - 10.2991/978-94-6463-246-0_18
ID  - Chen2023
ER  -