At the end of 1996, the "Aussie" as traders call it, was changing hands at more than 80 cents to the US dollar. Since then it has been on an inexorable downward path, hitting a low of US$0.48 last September.
The strength of the burly greenback is a major factor in the weakness of the dollar. But it has also depreciated by an average of 10% against the currencies of all its trading partners, including the euro.
The crumpled currency has done wonders for the Australian export sector, making the goods and services the country sells overseas super competitive in almost every market. The cheap dollar was the principle reason that the country came through the 1997-1998 Asian crisis virtually unscathed. Even during recent stumbling global growth, exporters of everything from beef and lamb to coal and gold have been able to bring their US dollar revenues back across the exchanges to bolster profits at home.
If the Reserve Bank of Australia had deliberately engineered a soft dollar, there might have been howls of anguish from competitors and charges of unfair tactics raised in trade forums. But the monetary authorities have simply accepted the reality of negative capital flows, intervened to support the currency from time to time, and sat back to enjoy the benefits. The exchange rate is great for visiting tourists too.
International foreign exchange dealers keep thinking up new reasons to sell. Since Australia is a big supplier of commodities, its currency is seen as a weather vane to industrial production among world economies. Hence its weakness throughout much of last year, as US factory output continued to fall. But that does not tie in with the depreciation during 2000, when global demand was strong, and commodity prices were rising. The explanation advanced then was that Australia was an old economy that had missed out on the high-tech revolution.
Australian interest rates, currently at 4.5% are 2.5% above US rates, which is the widest gap for more than nine years. That is starting to ring bells in Tokyo where investors are desperate for a decent yield on their money. So-called Samurai bonds, denominated in yen but redeemable in Australian dollars, are on their way back. The Samurais were all the rage in the mid-1990s, when Japanese institutions were buying more than A$6 billion a month worth. That demand helped hoist the Australian dollar dramatically. Those who held the paper too long took a cold bath. Now they are dipping their toes in the water again. There was brisk demand for a World Bank eurobond floated in Australian dollars, and a A$400 million (US$207 million) issue from the German bank, Landwirtschaft Rentantenken, last month took the year's Samurai total to A$3.6 billion. Retail investors are being tempted in by "uridashi" medium-term bonds yielding 5% against virtually zero in their post office accounts.
So far the offshore appetite for Australian bonds has not turned into a ravenous hunger. But it is one positive factor that may have helped the currency climb off the floor and dust itself down. Although now clinging grimly below US$0.52, the consensus is that the dollar is trending up. But it is unlikely to take a big run soon - unless the overvalued greenback finally turns around.