US dollars per Australian dollar

IBISWorld forecasts the AU$/US$ exchange rate to grow by 2.3% in 2024-25 to US$0.6722. Conflicting monetary policies between the US Federal Reserve and the RBA are expected to boost the Australian dollar's value during this period, contributing to its appreciation against the US dollar.

The RBA cut the cash rate five times between June 2019 and March 2020, including an emergency meeting that led to two rate cuts in March 2020, primarily due to the impact of the pandemic on the local economy. Demand initially moved towards safe haven currencies, such as the US dollar and Japanese Yen, causing the Australian dollar to fall to a low of US$0.5571 on the 19th March 2020. Demand for the Australian dollar was also weakened by the slowdown of the Chinese economy, which further encouraged investors to move towards safe haven currencies. In 2020-21, the Australian dollar strengthened due to Australia's success in containing COVID-19 and its faster-than-expected economic recovery. The RBA also cut the cash rate further to a record low of 0.10% in November 2020, but the Australian dollar remained resilient following the decision. Similarly, low interest rates overseas limited the effect on the value of the Australian dollar.

Post-pandemic inflation caused both the US Federal Reserve and the RBA to start raising interest rates in 2021-22. The RBA began increasing the cash rate steadily in May 2022, which sparked a run of 10 consecutive increases. A further cash rate rise occurred in November 2023, which pushed the rate to 4.35%. The US Federal Reserve was more aggressive with its rate hikes, lifting the federal funds rate by 75 basis points in July, September and November 2022, providing support for the US dollar in 2022-23.

Both central banks kept rates steady up until September 2024, when the US Federal Reserve dropped the interest rate target range by 50 basis points. This was followed up with another 25 basis point decrease in November 2024, justified by a cooling in the labour market and inflation decreasing towards the Federal Reserve's 2.0% target. Concerns about the potential of a recession in the US economy have driven expectations of further rate cuts in early 2025. Comparatively, Australia is lagging behind the US in its monetary policy. The cash rate has remained steady through November 2024, as inflation in the Australian economy remains well above the RBA's 3.0% upper bound target. Tightness in the labour market has also persuaded the RBA to keep rates stable, with current forecasts estimating that the first cash rate cut could come in February 2025 or later. This discrepancy in monetary policies is expected to see demand for the Australian dollar perform strongly against the US dollar in the latter half of 2024-25.

The expected rise in the AU$/US$ exchange rate in 2024-25 has faced increased uncertainty since Donald Trump's victory in the 2024 presidential election. President-elect Trump will return to the White House in January 2025, with his import tariff policies expected to impact demand for the Australian Dollar. Trump is expected to increase tariffs on foreign imports, particularly on Chinese goods. High tariffs on Chinese exports to the US would impact China's economy, with knock on effects to Australia, as Chinese demand for Australian goods may wane. This would reduce demand for the Australian dollar and the AU$/US$ exchange rate. These possibilities have caused anticipated increases in the AU$/US$ exchange rate over 2024-25 to be readjusted downwards. Overall, IBISWorld forecasts the AU$/US$ exchange rate to remain stable over the five years through 2024-25.