Unlocking Savings: How a Strong Aussie Dollar Can Boost Your Household Budget

The Australian dollar is currently trading just shy of 71 US cents, maintaining a position near three-year highs against the US dollar throughout much of 2026. This strong performance is mirrored against other global currencies as well.

This begs the question: what’s driving this upswing, and how sustainable is it?

Several factors contribute to this shift.

Elliot Clarke, head of international economics at Westpac, noted on Monday, “The US dollar is presently about 15 percent below its peak in mid-2022 and approximately 1.5 percent less than its 10-year average.”

Additionally, the unpredictability of Trump’s presidency has prompted investors to seek reduced exposure, influencing currency dynamics.

Trump himself is a factor here, as investors look to limit their exposure to his unpredictable, volatile presidency.

“Investors are concerned that the US is no longer a safe place to park money,” AMP deputy chief economist Diana Mousina said.

“Given the US attack on allies like Europe, reframing of international agreements and norms, the erratic nature of policy making from the Trump administration and US sanctions or freezing of foreign-owned US assets, (it’s) leading countries to wonder if they are next.”

“Another 1-2 rate cuts from the US Fed is likely this year, so even if the RBA keeps rates unchanged, the gap between Australian and US interest rates is widening,” Mousina wrote. 

“Historically, this has led to the Australian dollar appreciating against the US dollar.”

But it’s not just against the greenback that the Aussie is performing strongly. The trade-weighted index (TWI), which measures our dollar against a suite of other currencies, is at five-year highs of around 65.

That’s partly due to interest rates, which have a lower short-term outlook in other Western economies than at home, but also thanks to surging commodity prices, which have historically boosted the Australian dollar.

Is the higher dollar here to stay?

Without a reliable crystal ball to turn to, it’s impossible to say for certain, but the signs are good – certainly a retreat to 60-US-cent lows appears highly unlikely.

Equally, don’t bank on a return to the good old days of the early 2010s, when the Aussie was at and even above parity with the greenback.

“The fair value of the Australian dollar is around 0.72 US cents, relatively close to its current value,” Mousina said.

“So, on this measure the Australian dollar may not have much more upside. 

“However, (it) has a tendency to overshoot once momentum builds, meaning a short-term move towards 0.75-0.80 US dollars cannot be ruled out. 

“That said, such high levels are unlikely to be sustained. 

“Over the next few months, we expect the Australian dollar to average around $US0.70-0.75 with a trade-weighted index of around 69.”

What does that actually mean for the Australian economy?

Obviously a stronger dollar is fantastic for any Australians heading overseas, who get far better bang for their buck than when the currency is trading lower (although it’s bad news for tourists arriving here, who’ll have to contend with a more expensive holliday).

The same is true for Australian businesses that import goods, however the opposite applies to exporters, whose wares become more expensive to international buyers.

Overall, higher exchange rates can be a slight handbrake on the overall economic growth.

While that’s not great news for an economy that is only growing gradually, there’s a silver lining here for businesses and borrowers worried about the potential for more interest rate hikes this year: a stronger currency can take the sting out of inflation – which is, of course, the driving force behind higher rates.

“The impact on inflation from currency moves is through ‘tradable’ goods, items whose prices are mostly set on a global basis, because they are significantly influenced by international trade and competition,” Mouisna said. 

“Tradables make up 35 per cent of the inflation basket. 

“If the stronger Australian persists, then tradable inflation will most certainly have to slow from its current pace of 2.1 per cent…

“The stronger currency could do some of the work for the RBA in terms of reducing inflation.”

NEVER MISS A STORY: Get your breaking news and exclusive stories first by following us across all platforms.

The information provided on this website is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information on this website you should consider the appropriateness of the information having regard to your objectives, financial situation and needs.