"Australia has a floating exchange rate, which means that movements in the Australian dollar exchange rate are determined by the demand for, and supply of, Australian dollars in the foreign exchange market.
"That is what determines the value of our dollar. OUR CURRENCY IS NOT PEGGED TO THE US DOLLAR OR TO ANY OTHER CURRENCY OR BASKET OF CURRENCIES.
"Market Functioning and Foreign Exchange Intervention.
The RBA's approach to foreign exchange market intervention has evolved as the Australian foreign exchange market has matured. Despite having a floating exchange rate, the RBA can still intervene in the foreign exchange market. It may decide to do so if the market becomes disorderly or dysfunctional, or if the Australian dollar becomes grossly misaligned from a value implied by Australia's economic fundamentals. Intervention by the RBA has become less frequent over time and more targeted. The RBA last intervened in the foreign exchange market in 2007-08 during the global financial crisis, when it bought Australian dollars. This was in response to evidence that large, rapid depreciations in the Australian dollar had led to excessive volatility in the exchange rate. In other words the market was ‘dysfunctional’. Market dysfunction can occur when sharp changes in demand or supply cause the market for Australian dollars to become ‘one-sided’. A one-sided market means that the number of sellers far exceeds buyers for Australian dollars, or vice versa.
AND THAT IS WHAT RESERVES ARE FOR.
IF AMERICA IMPOSES SANCTIONS ON CHINA, THEN OWING TO OUR GREAT DEPENDENCY ON TRADE WITH THAT COUNTRY WE WILL HAVE TO ASK THE YANKEES FOR AT LEAST A PARTIAL EXEMPTION AND ADJUST THE BEST THAT WE CAN TO THE NEW REALITY WHICH MOST LIKELY WOULD INCLUDE EXCHANGE CONTROLS.
