A wild 30 years afloat
It's one of the world's most traded currencies, with a daily turnover of about $460 billion.
The Australian dollar has come a long way since it was floated by the Hawke government 30 years ago this week.
Then, the local foreign exchange market was small and underdeveloped.
The head of the Treasury, John Stone, opposed the float, fearful that the economy could be destroyed if the government lost its ability to control the flow of money.
Today, the floating currency has been widely acknowledged as playing a key role in the deregulation of the Australian economy.
At the same time, the dollar has played a relatively large role in currency markets despite the size of Australia's economy, Reserve Bank governor Glenn Stevens noted in a recent speech. The Australian-US dollar pair is the fourth-most-traded in the world, accounting for just less than 7 per cent of global foreign exchange turnover.
When the dollar was floated on December 12, 1983, it was valued at US90¢, close to its current level. But in less than three years, the dollar suffered big declines and traded as low as US57.1¢ in July 1986.
It was the first trough in three decades of volatility, sparked in part by a dire warning by then treasurer Paul Keating that Australia was a Third-World economy in danger of becoming a banana republic if fundamental changes were not made.
Australia faced credit downgrades by rating agencies in the late 1980s. There were fears the currency could collapse. But it recovered, surviving the recessions that hit Australia and other major economies in the early 1990s.
One of its biggest challenges lay ahead, when the country was seen as an "old economy" out of touch with the dotcom boom. The dollar fell to a record low of US47.7¢ in April 2001.
But the boom turned to bust and the dollar, with the economy in the midst of a two-decade-long expansion, strengthened as commodity prices rose.
Its sharpest fall came during the global financial crisis, when it plummeted from US98.5¢ to US60¢.
"The GFC collapse was the most dramatic of all in 30 years of pretty wild trading," Westpac senior currency strategist Sean Callow said.
"The scale and speed of the fall, and the fact that it wasn't Australia's fault, was a reminder of what a global currency it has become ... and therefore how vulnerable it can be to sudden global shocks."
The impact of the world's economies on the dollar was just as apparent when, in 2010, the currency reached parity against its US counterpart for the first time since it was floated. The dollar stayed mostly above US100¢ over the next two years. It then started its recent decline in mid-April, when the currency began to shed the "safe haven" role it had assumed. As Australia continues to grapple with below-trend growth amid a peak in the mining investment boom, analysts say the floating exchange rate will be central in acting as a pressure relief valve to ease the stresses on the economy.
"It's greatly enhanced the economy," JPMorgan chief economist Stephen Walters said of the floating dollar. "If you look at previous terms-of-trade booms that Australia has had in the last 100 years, they've all ended badly. The fact that this terms-of-trade boom looks like it's ending in a much better way and it's been so far so good, is partly because we have the flexible exchange rate," he said.
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