Looking at things in another way, a capital outlay of, say, $A100, as at 1 February 2000, invested in the stocks traded by The Share Trader would have been worth $A211 as at 31 December 2009; whereas the same $A100 invested in the stocks embodied in the All Ordinaries index, the Dow Jones Industrial Average, and the Nasdaq Composite Index, would have been worth $A158, $A95, and $A58, respectively.

US bourses performed abysmally during the period 2001 to 2008, which coincided with the 8 year rein of government by the former inept Republican Bush Administration, but rebounded spectacularly during 2009 under the Democrats' Obama Administration.

However, most of the rebound in equity markets during 2009 can be attributed to the year's massive economic stimulus packages, which are unsustainable in the long term and therefore will sooner or later have to come to an end as the reality of ballooning government debt comes home to roost to create other undesirable effects, such as rising interest rates.

To view the latest graph showing the monthly market value of The Share Trader's portfolio, click here. To read the latest analysis on the Australian bourse, click here, and that on the United States bourse,  click here.

Two main points ought be noted in respect of 2000, 2001, and 2002. The first is that, although the Australian GDP rose at a steady rate, the sharp fall in the All Ordinaries index noted in September 2001 reflected the response of the bourse to the terrorists' attacks in the United States on 11 September 2001. And the second is that the relative weakness in bourse prices noted during the whole of 2002 reflected lower investor, business, and consumer confidence as a result of apprehensions about the then faltering US economy impacting upon the Australian economy as well as the then looming US invasion of Iraq and its possible adverse consequences, particularly more terrorists' attacks. These points should help illustrate that, generally speaking, markets respond, not to existing known events or to those in the past, but to current expectations about the future. Those expectations at the time were pretty pessimistic during September 2001 and throughout 2002.

2003 saw the actual US-led invasion of Iraq, and the deep dip in equity prices.

Thereafter, during 2004 sentiment and expectations gradually improved as a result of war fears having subsided, leading to rising consumer, business, and investor confidence, all of which were reflected in rising bourse prices, that carried through to 2005, 2006, and to October 2007. Thereafter to 2008, equity prices began their gradual decline that saw the market's bad crash in September-October 2008 and the accompanying decline in business, consumer, and investor confidence.

2009 saw the economy (GDP) being subjected to massive government deficit spending, that resulted in a rise in consumer and business confidence, and hence a bounce up in the sharemarket.

2000 to June 2008.   The market value of the Australian dollar, as measured in US dollars, fell during 2000, steadied somewhat during 2001, rose steadily during 2002-2004, fluctuated during 2005-2006, and then rose from 2007 to June 2008. This can be explained by the fact that interest rates were initially lower in Australia than in the US during 2000, and then increased steadily during 2001 to mid 2008 in response to the mounting foreign debt threatening to weaken the Australian dollar. All this can be seen more clearly by referring to the graph below, on the Australian Dollar  v.  Difference (Australian Interest Rates Less US Interest Rates), or by clicking here.

During 2004-2007, a new economic parameter also came into being, namely, the sinking US dollar, which manifested itself by other currencies rising, including the Australian dollar. This added further complexity to the economic analysis.

Overall, though, during this period, the downward movement in the market value of the Australian dollar was cushioned, and thwarted, by having a high interest rate differential between Australian and US interest rates. This differential increased further during 2002 to mid 2008, and the Australian dollar duly responded by increasing in value vis-à-vis the US dollar.

July 2008 to December 2008.   From July 2008 to December 2008, the Australian dollar fell markedly, principally as a result of the worldwide markets' crash, that created a worldwide credit squeeze and repatriation of moneys overseas.The Australian dollar was under pressure principally due to US capital repatriations. Foreigners wanted their moneys on their home soil in order to alleviated their own domestic credit problems.

2009.   During 2009, the Australian dollar strengthened and so reversed its previous trend, due principally to increased prices for minerals and their exports to China, that also resulted in a slight fall off in the rise of the foreign debt.

Summary.   In summary, Australian interest rates really need to be much higher than in the US, and to be sufficiently high enough in order to stabilise the Australian dollar vis-à-vis the US dollar, as a result of Australia's huge foreign debt. This debt needs continuing funding by overseas investors, who require incentives (relatively high interest rates) to do so. This has therefore saddled Australia with a debilitating constraint in formulating and setting its economic policies. As a result, Australia has really lost much of its economic independence, something which the governing politicians are hardly likely to rush to admit to the Australian people.

To read the latest analysis on the Australian dollar, click here.

2000 and 2001.   The Australian official interest rate was lower than the United States' during the years 2000 and 2001, and this resulted in a mini currency crisis in Australia at the time.

2002-August 2008.    The Australian official interest rate was higher than the United States', and this resulted in the Australian dollar halting its decline, stabilising somewhat, and then ascending. This strengthening in the Australian dollar during the period 2002-August 2008 was also hugely aided by a corresponding weakening in the US dollar at the time.

This stability in the value of the Australian dollar, and its later rising strength and value, strengthened as the difference between Australian and US interest rates widened. This relationship is more readily apparent in the graph below, Australian Dollar  v.  Difference (Australian Interest Rates Less US Interest Rates). Or click here. However, during 2004-2006, the interest rate differential narrowed, thereby resulting in a somewhat stable Australian dollar rather than a steadily rising one. During 2007-August 2008, the differential increased, and so the Australian dollar did likewise.

In essence, then, during the period 2002-August 2008, the interest rate differential was the main mechanism by which the imbalances in Australia's external account were being managed, and the steadily rising differential was really the incentive provided to foreign lenders in order to have them continue financing Australia's foreign debt.

It is this huge foreign debt, however, which is the main determinant factor influencing the value of the Australian dollar and Australian interest rates, and it is the high differential between Australian and US interest rates that then determines the movement, and its extent, in the value of the Australian dollar vis-à-vis the US dollar.

September 2008 - December 2008.   Things changed rather dramatically in September-October 2008, due to the markets' crash, that saw the Australian dollar plummet against most currencies, with US and other investors probably recalling their Australian dollar loans in order to ameliorate their own domestic credit needs. The Australian interest rate was therefore rather sticky in following falling interest rates elsewhere around the world, in order to countervail such loans repatriation. Because of its huge foreign debt, Australia has lost most of its independence in setting its interest rate to fit internal domestic conditions.

2009. During 2009, the high interest rate differential was maintained and this resulted in the Australian dollar clawing back its previous losses in value.

To read the latest analysis on the Australian dollar, click here, that on the Australian interest rates, click here, and that on the United States interest rates, click here.

To read the latest analysis on the Australian dollar, click here.

Looking at things in another way, a capital amount of, say, $A100 in Australian currency, as at 1 February 2000, would have been worth, as at 31 December 2009, $A141 in United States dollars, $A96 in European euros, $A121 in Japanese yen, and $A142 in United Kingdom pounds. Being able to acquire more foreign currency than previously with the same amount of domestic money, is generally known, in economics, as currency appreciation. So, as at 31 December 2009, the Australian dollar appreciated [increased] in value against all major 'freely-traded' currencies except the euro.

Australian dollar v. United States dollar. The Australian dollar was weaker vis-à-vis the United States dollar until about September 2001 as a result of Australia's mounting foreign debt. These negative effects, arising from having this huge foreign debt, were subsequently countervailed by increasing both the Australian official interest rate as well as thereby the interest rate differential between Australian and US interest rates, in order to make it much more attractive for foreign lenders to deposit and/or leave their moneys in Australia, thereby relatively strengthening the Australian dollar by such an inflow of capital. In consequence, the Australian dollar began to recover some of its previous losses, and continued its steady rise in value from its lows. This rising trend was further aided, up to September 2008, by the steadily weakening US dollar, brought about by the United States' ballooning internal and external deficits, arising from its numerous wars and from the uncontrolled free spending ways ushered in by the former Republican Bush Administration. The US dollar was sinking principally because the United States was printing and spending and wasting far too much paper money, and was scaring off foreign investors away from their US dollar holdings and into those of the European Union's euro. Things changed rather dramatically in September-October 2008, due to the markets' crash, that saw the Australian dollar plummet against most currencies, with US investors probably recalling their Australian dollar loans in order to ameliorate their own domestic credit needs. From October 2008 and throughout 2009, the Australian dollar strengthened through the further weakening of the US dollar and through the perception that the Australian economy was sound as a result of perceived mineral exports to China. 

Australian dollar v. Japanese yen. The Australian dollar was weaker vis-à-vis the Japanese yen until about October 2000 as a result of Australia's mounting foreign debt. Then, owing to rising Australian interest rates, the Australian dollar began to recover some of its previous losses, and continued its steady rise in value from its lows. This rising trend was further aided, up to December 2007, by the sinking yen as a result of Japan's deflating economy and the weakened confidence in its domestic banks, which were carrying inordinate amounts of non performing loans that should have been written off as bad debts long, long ago. Things changed rather dramatically in September-October 2008, due to the markets' crash, that saw the Australian dollar plummet against most currencies, with Japanese investors probably reducing carry trades and recalling their Australian dollar loans in order to ameliorate their own domestic credit needs. This repatriation strengthened the yen, thereby weakening the Australian dollar. From October 2008 and throughout 2009, the Australian dollar strengthened through the further weakening of the Japanese economy and through the perception that the Australian economy was sound as a result of perceived mineral exports to China. 

Australian dollar v. European euro. The Australian dollar was weaker vis-à-vis the European euro until about December 2002 principally as a result of the strengthening European euro, even though Australia's mounting foreign debt also played a major part. Then, owing to rising Australian interest rates, the Australian dollar began to recover some of its previous losses, and then stabilised during 2003 - 2007, no doubt aided by the perceptions of an impending boom in Australian mineral exports to China. Since 2000, however, overall the Australian dollar has fallen against the Euro, which is now fast becoming the international currency overtaking the fast sinking United States dollar. Things changed rather dramatically in September-October 2008, due to the markets' crash, that saw the Australian dollar plummet against most currencies, with European investors probably recalling their Australian dollar loans in order to ameliorate their own domestic credit needs. This repatriation continued to strengthen the euro, thereby weakening the Australian dollar. From October 2008 and throughout 2009, the Australian dollar strengthened through the further weakening of the European economies and through the perception that the Australian economy was sound as a result of perceived mineral exports to China. 

Australian dollar v. United Kingdom pound. The Australian dollar was weaker vis-à-vis the United Kingdom pound until about September 2001 as a result of Australia's mounting foreign debt. Then, owing to rising Australian interest rates, the Australian dollar began to recover some of its previous losses, and continued its steady rise in value from its lows. This rising trend up to December 2007 was principally aided by the steadily weakening UK pound as a result of the United Kingdom's involvement in the wars that the United States was enmeshed in. In consequence, the UK pound tended to mirror the US dollar, which meant currency weakness and a steady decline in its value. Things changed rather dramatically in September-October 2008, due to the markets' crash, that saw the Australian dollar plummet against most currencies, with British investors probably recalling their Australian dollar loans in order to ameliorate their own domestic credit needs.This repatriation strengthened the British pound, thereby weakening the Australian dollar.  From October 2008 and throughout 2009, the Australian dollar strengthened through the further weakening of the British economy and through the perception that the Australian economy was sound as a result of perceived mineral exports to China. 

Summary: An overall analysis of the movement in the Australian dollar is most difficult, mainly because different economic forces have been in play, not only in relation to other individual currencies, but also in relation to different years. But, overall, the Australian dollar has been impacted by the rising foreign debt that would drive the dollar down; by the relative high interest rates that would drive the dollar up; by the continued weakness in the US dollar that would drive the Australian dollar up; by the failed free trade and globalisation policies of successive Federal Governments that would drive the Australian dollar down; and by the perceptions or reality of major export income flows arising from minerals exports that would drive the Australian dollar up.  Not easy, eh?  But I did say so. Added to these factors are now the events of September-October 2008, due to the markets' crash, that saw the Australian dollar plummet against most currencies, with many foreign investors probably recalling their Australian dollar loans and carry trades in order to ameliorate their own domestic credit needs. From October 2008 and throughout 2009, the Australian dollar strengthened through the further weakening of the various overseas economies and through the perception that the Australian economy was sound as a result of perceived mineral exports to China. The Australian economy was also injected with enormous amounts of government spending from borrowings, that have now created other problems: rising government debt, when previously it was in massive surplus, and rising interest rates.

And yet, in the wash up, Australia's foreign debt continues to mount, with imports continuing to exceed exports, with no end in sight of a reversal. This constitutes the greatest failure of successive Australian Federal Governments, which have concealed the mounting debt problem from the ordinary Australian people, a betrayal of the people.

To read the latest analysis on the Australian dollar, click here, and that on the United States dollar, click here.