The idea is that a country holds its FX reserves in dollars if the local
currency moves closely with the dollar.
With most Asian
currencies moving closely with the US dollar over the period, and these currencies having a large weight in the Australian dollar TWI, over 70 per cent of the TWI was in effect determined by movements in the US dollar.
Not exact matches
In fact, throughout this period, the Australian dollar, in common with many other
currencies in the region, showed a remarkable tendency to
move very
closely with the yen (see Box).
If
moves in the exchange rate are large or swift, funds using
currency hedging may not track their indexes
closely.