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When I watch the finance section of ABC (the Australian one) news, they talk about how the Australian dollar is faring against the US dollar plus a handful of other currencies. The problem is, I don't know whether it's that the Australian dollar is going up or down, or the US dollar changing.
How can I determine how a currency I'm interested in (the Australian dollar) is doing in and of itself against the rest of the world as a whole?
What you want is the average change in rate of the Australian Dollar against multiple other currencies, to even out the effect of moves in a single other currency.
People often look at the trade-weighted exchange rate to get an idea of this, as it allows you to look at the currencies that are most relevant, rather than every tiny other currency having an equal weight.
If you're interested in slower scale changes, one option is to use indexes that value a common commodity in different currencies such as the Big Mac Index. If a Big Mac costs more in AUD but stays the same in USD, then AUD have gone up.
The best answer to your question would to be what the interest rates are like in Australia itself.
The Reserve Bank sets the target ‘cash rate’, which is the market interest rate on overnight funds. It uses this as the instrument for monetary policy, and influences the cash rate through its financial market operations. Decisions regarding the cash rate target are made by the Reserve Bank Board and explained in a media release announcing the decision at 2.30 pm after each Board meeting. (Prior to December 2007, media releases were issued only when the cash rate target was changed.)
From Investopedia:
How Rates Are Calculated
Each central bank's board of directors controls the monetary policy of its country and the short-term prime interest rate that banks use to borrow from each other. When the economy is doing well, interest rates are hiked in order to curb inflation and when times are tough, cut rates to encourage lending and inject money into the economy.
Have a look at this from graph from http://www.rba.gov.au/monetary-policy/int-rate-decisions/
I would then go to a website that allows you to compare, graphically, whichever interest rate you want.(Or you could get the raw data and run some analysis, to each his own)
FYI, this topic (FX) is incredibly complex and I hope my answer satisfies your needs.Otherwise, talk to a quant. You will need a ton of data inputs to model the entire economy of Australia to try and predict what the central bank will do, which is what people try and do everyday.
Best of luck!
To make it simple, just use gold as the main benchmark. Gold price never moves, FIAT currencies move around the price of gold.
So, when comparing US$ and Australian dollars to the gold, you know which currency is moving up and which down.
