With reference to Figure 2 and Extract A, explain one likely reason for the change in the Australian dollar (AUD) exchange rate between 2013 and 2015.
| Year | Price (US dollars per 1 Australian dollar) |
|---|---|
| 2011 (start) | 1.03 |
| 2011 (end) | 1.02 |
| 2012 (start) | 1.04 |
| 2012 (end) | 1.01 |
| 2013 (start) | 1.05 |
| 2013 (end) | 0.89 |
| 2014 (start) | 0.89 |
| 2014 (end) | 0.82 |
| 2015 (start) | 0.81 |
| 2015 (end) | 0.73 |
| 2016 (start) | 0.69 |
Australia experienced a significant resource boom in the 2000s and early 2010s, but faced severe headwinds following the sharp downturn in global metal and mineral prices starting in mid-2013. Iron ore and concentrated ores account for approximately 30% of Australia's total export earnings and make up around 6% of its GDP. A rapid expansion of low-cost iron ore production in Brazil and Australia itself, coupled with a slowdown in steel production and infrastructure investment in China (Australia's largest trading partner), created a massive global surplus. Consequently, iron ore prices fell from over 130perdrymetrictonneinearly2013tounder 130 per dry metric tonne in early 2013 to under \,130perdrymetrictonneinearly2013tounder50 per tonne by late 2015. This price collapse led to a dramatic contraction in capital expenditure and foreign direct investment (FDI) in Australia's mining sector, which fell by over 40%. It also sharply reduced government corporate tax revenues.
To manage this transition, the Reserve Bank of Australia maintained a floating exchange rate system. The depreciation of the Australian dollar has helped boost service exports such as tourism and international education, and supported agricultural exporters. However, the weaker dollar raised import costs, prompting debate over the balance of domestic monetary policy.
