The little aussie battler

Those of you that know me, know that I am studying Finance and Management at the University of Technology, Sydney. One of the subjects I am doing this semester is a subject called Quantatative Business Analysis (or QBA). Pretty much deals with Maths and using statistics to discover relationships between various sets of Data. Very interesting subject (if pretty difficult).

Anyway, the assignment we have been given is to discover the relationship between the Australian Dollar and commodity prices during the Sub-Prime era (between Jan 07 and Jan 09, otherwise known as the GFC). The basic premise being that the Australian dollar moves in conjunction with the price of Australia's exports (i.e coal and metal). Not a bad argument and it is found to be true after Aug 08. However before Aug 08, the opposite is true. The Australian dollar was increasing while the metal prices were decreasing. Our lecturer last night put it as statistically "weird".

However, I don't think so. Last year, during the subject "The Financial system", our lecturer stated that there is a better collelation between the Reserve Bank Cash rate target and the
Australian Dollar.

So I decided to put the data in a couple of graphs. If we chart Interest rate Vs Time we get the following:

As you can see, Interest rates increased to Aug 08 and then fell through the floor befor stabilizing.

Now if we compare that to how the Australian Dollar has performed over the same period of time:-

Not a bad correlation really. So you would have to suggest that interest rates are more of an indication of how the Australian dollar moves than metal prices.

But I might put some results from Eviews in here at some time to see if there is a valid correlation here and whether it is statistically significant