The Australian dollar’s exchange rate (mainly in relation to the American dollar) has received a considerable attention in research and several models have been proposed to explain its trend and fluctuations. Thus, as a conclusion of this research we can say that this commodity currency very much depends on the terms of trade which in turn depend on commodity prices. The present paper is based on this conclusion and hence proposes the possibility that the Australian dollar’s behavior is overwhelmingly explained by a handful of cycles of mainly harmonic frequencies. Using the principles of Fourier analysis, a simple regression provides considerable evidence about the existence of these cycles. In addition, and as important, a search into the commodity realm demonstrates that these cycles are for example related to various cycles of mining and producing minerals. If the proposition of the present paper is true, we have a very simple yet substantial explanation of the long term trend and fluctuations of the Australian dollar exchange rate and probably of exchange rates of many other commodity currencies.
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Paper provided by School of Economics, University of Wollongong, NSW, Australia in its series Economics Working Papers with number
wp05-29.
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