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Aussie dollar to hit the ‘mid-70s’ as RBA raises interest rates
The sudden surge in the Australian dollar above US71¢ is expected to continue for the next few months at least, but some strategists warn the rally could rapidly unwind as the US currency starts to reassert itself.
The Aussie dollar touched US71.47¢ on Thursday, its highest level since February 2023 and extending its rally already this year to a massive 7 per cent, buoyed by a weaker greenback and an interest rate increase by the Reserve Bank of Australia last week.
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The Aussie dollar is soaring – but there’s a hidden headwind
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When Australians invest in global markets, they are essentially making two decisions at once. The first is an investment call on the underlying asset. The second, which is often overlooked, is a currency bet.
For many investors, it’s this hidden currency exposure that can come as a surprise. Movements in the Australian dollar can quietly add to or erode returns from international investments and have the potential to overwhelm the performance of the asset itself.
If the Australian dollar rises by 10 per cent against the US dollar, the value of that investment falls by roughly 10 per cent when converted back into Australian dollars, even if the underlying shares have not moved. The opposite is also true: if the Australian dollar falls, unhedged offshore investments receive a boost.
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AI industry risks and the Australian dollar nears US$0.71
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