Strong Aussie dollar a win for drivers, shoppers and travellers

The Australian dollar has emerged as one of the world’s standout currencies since the Iran war — a timely boost for Australians spending on imported goods, from online shopping and airfares to fuel at the petrol pump.

The local currency was buying nearly US72¢ on Friday — a four-year high — making it just one of three major currencies to rise against the greenback since the conflict began on February 27.

Commonwealth Bank economist Kristina Clifton said the local dollar could get a brief bump up in the coming weeks once critical oil passageway Strait of Hormuz was reopened.

“In our view, a reopening of the Strait is still three to four weeks away,” she said. “We judge AUD/USD can receive a temporary boost of around US1-2¢ when it looks like the Strait of Hormuz will reopen.”

With inflation rising and global markets grappling by fuel shock uncertainty, ITC Markets senior foreign exchange analyst Sean Callow said the timing of the Aussie dollar’s surge could help ease inflation pressures at home.

“When we look at global oil prices, they are priced in US dollars. So, if the Aussie is higher against the dollar, that takes a little bit of the cost increase out of it,” he said.

“Australia can count itself lucky. Many other countries — India, Indonesia, Japan — are in a difficult spot because their currencies are under pressure the same time oil prices are surging, compounding the inflation impact to consumers.”

Australia’s currency has been uniquely positioned among global peers, buoyed by a combination of commodity strength, higher interest rates and relative economic resilience.

In recent months, the dollar has benefited from firm prices for key exports such as iron ore and gold.

“The gold frenzy we saw earlier in the year was on of the real drivers for the Aussie dollar,” Mr Callow said. “If the gold price is rallying, then the traders want to be buying the Aussie, so it feeds upon itself.”

More significant has been the Reserve Bank of Australia’s decision to hike rates.

Rising inflation pushed the RBA to hike rates twice this year, with some analysts now expecting up to three more increased by December.

That approach contrasts with many overseas central banks. Markets expect the US Federal Reserve to cut rates twice more this year, while talks of further hikes in Britain has eased.

Mr Callow said this places Australia in a special position.

“We’re seen as safe and stable, offering an attractive yield in an environment where rates are rising,” he said. “So, if investors are considering where they can get a higher interest rate on their currency investment, then Australia is increasingly appealing.”

While a strong Australian dollar could help reduce the cost of imported goods, Mr Callow cautions that it would take time to translate to supermarket and retail prices.

“The pricing you see now when buying electronics, toys or furniture are often priced a year ago or more.”

Instead, shoppers can get immediate savings online.

“Your credit card uses the daily exchange rate,” Mr Callow said. “If you’re buying from US retailers like Amazon, the exchange rate is increasingly working in your favour.”

The currency surge is also translating into savings for overseas travellers.

The Australian dollar is at a 30-year high against the Japanese yen and an 11-year high against the Indian rupee. It is also trading at 12,309 Indonesian rupiah — nearly 70 per cent above its 30-year average of 7338.

“It’s arguably the best time to go to Japan right now. You’ll also get a lot for your Aussie buck in Türkiye, New Zealand and much of Asia,” Mr Callow said.

“However, it also means the opposite for tourism as visitors for China or Kiwis hoping to jump across the ditch will face higher prices.”

And therein lies the duality of exchange rates: if you are winning, someone is losing.

Australia is a net exporter, selling $646b of goods and services overseas in 2024/25, while importing $630b.

The bottom line is, according to Richard Franulovich, head of FX Strategy at Westpac Institutional Bank, the stronger the currency, the less competitive exports are in global markets.

The concern is that this could impact Australia’s leading export sectors such as iron ore, coal and gas.

“I wouldn’t overstate it though,” Mr Franulovich said. “As the RBA has said the run-up to the Aussie increasing is justified through rising commodity prices and higher interest rates.”

“It’s only when the Aussie dollar is stronger than what the fundamentals suggest when it becomes a problem and hits your competitiveness.”

As the interest rate difference between the US and Australia widens, some analysts expect the Australian dollar to keep gaining ground. AMP chief economist Shane Oliver priced fair value for the Australian dollar at US72¢.

If the Middle East conflict is resolved and the economy holds up, Mr Callow believes there may be further upside.

“The Aussie could hit 74¢ against the US dollar in six months time.”