International Trade (Unit 3 Topic 1)  

Key Periods in AUD History (1999–2026)

• 1999–2001: The Trough (Low Point): Following the Asian financial crisis in the late 1990's, the AUD fell to a low of 47.75 US cents in April 2001.

• 2002–2011: The Mining Boom & Appreciation: The currency experienced a massive, sustained appreciation driven by increased demand  for Australian commodity exports (iron ore, coal) from China. Consequently, increased demand for AUD to pay for these commodities leads to currency appreciation.

• 2010–2013: Parity with the USD: In October 2010, the AUD reached parity (1:1) with the USD for the first time since it became a floating currency (1983). It peaked above US$1.10 in July 2011.

• 2014–2020: Post-Boom Normalisation: Following the end of the mining investment boom and falling terms of trade, the AUD depreciated from its 2013 highs. It hit a low point during the initial COVID-19 pandemic market stress in March 2020.

• 2021–2026: Consolidation and Volatility: The AUD has generally hovered lower, influenced by interest rate differentials between the RBA and the US Fed. The Australian cash rate has been lower than US cash rate, thus influencing flow of financial investment to US. In turn, this increases demand for USD, and consequently reduces demand to AUD - so AUD value falls relative to USD.  Also, China's economic performance is below historic demand, which reduces commodity exports . As of early 2026, the AUD  is considered undervalued by some, acting as a buffer (automatic stabiliser) for the economy - eg. maintaining export volumes / output as export goods are relatively cheaper for overseas buyers.

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Primary Drivers of the AUD (Since 1999)

• Terms of Trade (Commodity Prices): The most significant driver. High commodity prices (mining boom) drive appreciation, while declining terms of trade (post-2013) drive depreciation.

• China Exposure: Because a large portion of Australian exports go to China, the AUD is highly sensitive to China's economic health and manufacturing sector.

• Interest Rate Differentials: The gap between RBA rates and other major central banks (especially the Fed) influences capital flows. Higher relative rates in Australia tend to support the AUD.

• Global Risk Sentiment: As a "risk-on" currency, the AUD often appreciates during times of global economic optimism and depreciates during crises (flight to quality). 

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Structural Changes to the Australian economy

• Internationalisation: The AUD has become the 6th most traded currency globally, with the AUD/USD pair being the 4th most traded.

• Floating Exchange Rate: The RBA has maintained a free float, which has allowed the currency to act as a "shock absorber" for the economy, adjusting to commodity price shocks.

• Inflation & Purchasing Power: $100 in 1999 had the same purchasing power as approximately $209.94 in 2026, reflecting a 109.94% cumulative price increase over that period.

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Review your understanding with resources from the Reserve Bank of Australia (RBA):

1. Click here for the Exchange Rates and their Measurement  Explainer by the RBA 

2. Click here for the Exchange Rates and the Australian Economy  Explainer by the RBA

3. Click here for the Drivers of the Australian Dollar Exchange Rate  Explainer by the RBA