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The Australian dollar — why it moves the way it does
The Australian dollar was floated on 12 December 1983 — a landmark economic reform under Treasurer Paul Keating. Before that, Australia maintained a fixed or managed exchange rate, which required constant intervention by the Reserve Bank to defend.
Today, the AUD is one of the world's most traded currencies despite Australia representing only about 1.7% of global GDP. It punches above its weight because:
- Commodity proxy: Australia is a major exporter of iron ore, coal, LNG, and agricultural products. When commodity prices rise, the AUD typically appreciates — making it a useful proxy for global resource demand.
- Carry trade: When Australian interest rates are higher than other developed nations, the AUD attracts foreign capital seeking yield — supporting its value.
- China exposure: About 30% of Australian exports go to China. AUD movements often reflect sentiment about Chinese economic growth.
- USD correlation: The AUD is primarily quoted against the USD. A stronger US dollar typically means a weaker AUD, and vice versa.
🦘 Fun fact: In October 2010, the AUD hit parity with the USD for the first time since being floated. It briefly exceeded USD 1.10 in mid-2011. Australians who travelled overseas during that period remember fondly — shopping in the US felt like getting a 10% discount on everything.