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Project Overview

Project Number
M0118
Program Area

Summary

The likely effects of variations of exchange rates between the Australian dollar, the US dollar, the Deutschmark and the Yen on prices of four commodities – coal, iron ore, wheat and wool – are considered with the following mean empirical findings:

  • World prices (and the exchange rate) are at least as important as wages in their influence on inflation in Australia.
  • The value of the A$ is heavily affected by wages and external prices; With the A$ worth $US 0.78, the A$ is overvalued by 4 to 8%.
  • The expectation of a possible devaluation of the A$ some time in the future helps to explain why interest rates are so high in Australia relative to the rest of the world.
  • Exchange rates account for 12% of the variability of coal prices, 52% for iron ore and 90% for wheat.

Keywords: exchange rates, commodities, coal, iron ore, wheat, wool

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