Examine the below graph of central bank monetary policy rates. The dashed lines represent forecasts.

Based on this graph and the theory of interest rate parity only, what do you expect to happen to the EUR per AUD cross rate over the next two years?

The EUR per AUD exchange rate number is expected to:

Select one:

a. Rise due to the EUR appreciating against the AUD.

b. Rise due to the EUR depreciating against the AUD.

c. Fall due to the EUR appreciating against the AUD.

d. Fall due to the EUR depreciating against the AUD.

e. Remain constant.

Policy Rate Expectations % 1% US NZ 2 2 1 1 Japan 0 0 Euro area % % 2 2 Canada Australia 1 1 UK O 0 1 -1 2017 2019 2021 2017 2019 2021 Sources: Bloomberg; RBA Policy Rate Expectations % 1% US NZ 2 2 1 1 Japan 0 0 Euro area % % 2 2 Canada Australia 1 1 UK O 0 1 -1 2017 2019 2021 2017 2019 2021 Sources: Bloomberg; RBA