The Aussie dollar explained: what moves it and why

Why does its value change from one day to the next?

It’s an important question, because understanding why the currency shifts can help us make sense of changes in the prices of things we buy, the interest rates we pay on loans and earn on savings, and the forces shaping the economy.

When you see a number talking about the value of the Australian dollar, it’s really telling you how much of a foreign currency one Australian dollar buys .

When people talk about the Australian dollar rising or falling, they are usually referring to its value against the US dollar, which is the most commonly traded currency “pair” involving the Australian dollar.

Like most things we buy, when demand for the Aussie dollar is higher, its market price goes up. When demand is lower, the price goes the other way, and it gets cheaper to buy Aussie dollars paying in currencies like the US dollar, UK pounds or euros. 

Because the value of the Australian dollar – expressed in terms of what it is worth in exchange for other currencies - is set by global markets, it often reacts quickly to changes in economic conditions, both in Australia and other countries. 

Its movements reflect how markets react to changes in commodity prices, interest rates and global economic and financial conditions - and those changes can filter through to trade, prices and household budgets.

What the Australian dollar is

The Australian dollar is Australia’s currency, but since 1983, its value hasn’t been fixed or set by the government.

Instead, it’s freely traded globally.

“The value of the Australian dollar is determined by the market,” said CommBank international economist and currency analyst Samara Hammoud. “When people buy and sell the currency, that’s what makes its value move up and down.”

That means the dollar reflects global behaviour as much as conditions at home.

The four main drivers of the Australian dollar

Movements in the Australian dollar usually come back to four key forces:

Commodity prices 
 
Australia’s economy relies heavily on selling goods overseas, particularly raw materials like iron ore, coal and gold.

Because those make up such a large share of Australia’s exports, shifts in commodity prices tend to flow through to the currency, because it creates demand for Australian dollars. 

“When commodity prices increase, the Australian dollar also tends to increase,” Hammoud said.

This link exists not just because prices have already moved, but because markets expect higher export earnings when commodity prices rise.

Interest rate differences 
 
Interest rates can also create demand for currencies. What matters for currencies is the return investors can earn by holding assets in one country compared with another.

Put simply, money will tend to flow to places where there are better returns on offer, creating demand for that nation’s currency. 

“When Australian bond yields increase, that tends to support the Australian dollar,” Hammoud said. 

“But if US yields rise more than Australian yields, that can support the US dollar instead.”

This reflects how global capital flows towards higher returns. 

Sharemarket performance 
 
Stronger Australian sharemarket returns can also drive capital flows and therefore impact the Australian dollar. Equities provide a stream of income through dividends as well as potential capital gains. 

“If our markets are performing better than US markets, the Australian dollar tends to rise, and vice versa,” Samara Hammoud said.

Global risk sentiment

“When the global economy is performing well, the Australian dollar tends to perform well,” Hammoud added. “But in times of stress or uncertainty, it usually falls.”

The Australian economy’s exposure to commodity prices is a key driver of its risk sensitivity. That’s because demand for the things we sell – like iron ore – tends to rise when economies are performing well, and changes in the global economic outlook are correlated with risk sentiment. When confidence is lower, investors are more likely to slow down on new investment and retreat into “safe haven” assets and currencies like the US dollar that they think will keep their money safer. 

That’s why the Australian dollar can weaken during global shocks even if nothing has changed in Australia itself.

How Australian economic data moves the dollar

The Australian dollar often reacts sharply to economic data releases such as inflation or unemployment figures.

That’s because markets don’t just respond to the numbers themselves, they respond to how those numbers compare with expectations.  
 
Stronger data can lead markets to reassess interest rate expectations, which then feed into currency movements.

“Economic data matters because it can either beat or fall short of what markets are expecting,” Hammoud said. “If data comes in stronger than expected, the Australian dollar can lift.”

How the Australian dollar shows up in everyday life

Travel and overseas spending

A stronger Australian dollar generally stretches money further overseas.

Flights, accommodation and spending abroad often cost less when the currency is higher.

Online shopping and imports

The same applies to imported goods.

“Goods priced in US dollars, like clothing, shoes and technology, can become cheaper when the Australian dollar increases,” Hammoud said.

Australia’s export earnings 

While a strong Aussie dollar is usually good for travellers and shoppers, it can be a double-edged sword for exporters like farmers and miners. 

A rising dollar can mean higher earnings for their exports, but if it goes up too much, it may make their products too expensive for overseas buyers, cooling demand as buyers look for cheaper options.

Inflation at home

A weaker Australian dollar means imports become more expensive, which can add to inflationary pressure in the economy.

This is one of the main ways global currency movements can feed back into domestic inflation and prices, even when local demand hasn’t changed.

The takeaway

The Australian dollar moves because buyers and sellers are constantly absorbing information from global and local markets.

Interest rates, commodity prices, share market performance, relative bond yields and investor confidence all feed into its value - often quickly, and sometimes before those shifts are felt elsewhere in the economy.

Understanding those drivers makes it easier to see why the dollar moves the way it does, and why those movements matter beyond currency markets.