What is the Role of Australia Forex Regulatory Authority?

Australia is amongst the fastest growing trade markets in the world. Its value can be seen from the fact that in 2009, the nation reported a GDP of US$1025 billion, which amounts to 1.64% of the world economy. The role of the Forex Regulatory Authority is fulfilled by the Reserve Bank of Australia (RBA). Its board members meet on the first Tuesday of each month, which means eleven times a year (no meetings in January), to roll out policies that ensure low and stable inflation, financial stability, and efficiency of the payment system.

Australia is a debt ridden economy. In 2008, its debt stood at US$2.5 billion. The policies of the RBA tend to be a little inclined towards trying to decrease this deficit.

Functioning of Australia’s Forex Regulatory Authority

The RBA has a Domestic Market Division, whose main job is to keep the cash rate in the money market near the operating target set by the bank. Here, the cash rate implies the rate charged on loans to financial institutions. Whenever the market becomes excessively volatile or the exchange rates become inconsistent with its economic fundamentals, the RBA enters the forex market. This involves setting up a Trade Weighted Index (TWI) to work on. The TWI is used to denote the weighted average of the Australian dollar with the currencies of its trade partners, mainly the US, China and Japan.

Such index levels are refreshed everyday at 9 am, 12 noon and 4 pm. By carefully monitoring both the TWI and USD index, the RBA ensures the stability of its market conditions.

Factors Affecting the Australian Forex Regulatory Authority

Australia is the third largest producer of gold in the world. This allows the Australian dollar to grow when the price of the commodity increases. The only thing holding it back is its economy’s debt ridden state. The global recession has also added to the woes of the RBA.

In May 2010, the RBA increased its cash rate to 4.5% in order to counter the fluctuating market in Europe. Due to the increase in the requirement of raw goods in Asia, the RBA plans to achieve the peak last seen in 2008 and, by the end of 2010, it plans to outgrow the output produced last year.