Volatility of the Australian Dollar Exchange Rate

Since the floating of the Australian dollar in December 1983, questions have been raised from time to time about whether the currency is “excessively” volatile. This paper assesses the volatility of the dollar in the four years prior to the float and in the six years thereafter. The results show that while the variability of the Australian dollar has indeed increased since the float, it remains less volatile on a bilateral basis than most other major currencies and less volatile than the prices of several other assets. Furthermore, the increase in volatility of the local currency is not unique but reflects a more turbulent global foreign exchange market.