Commodity Export Prices and Exchange Rate: An Australian Perspective

The impact of export commodity prices on the Australian dollar/US dollar exchange rate is investigated. Within a regression framework, the effect of four commodity sub-indices as generally favoured by the Reserve Bank of Australia is explored. These are Rural, Non-Rural, Base Metal and Bulk commodities. The aim is to find, if any, whether a particular category of commodities correlates especially well with changes in exchange rate given the commodities boom that Australia has recently experienced. The Non-Rural commodity sub-index appears to have the most explanatory power. The inclusion of the Balance of Trade variable shows a marginal improvement in the explanatory power