Whilst there has been much media hype about the recent RBA interest-rate rise, a much quieter, yet potentially far more sinister macro-economic factor is at play!

We’re talking about the standing of the US dollar – the global standard in “fiat currency” – for now anyway.  It hit a four‑year low in late January, associated with a structural shift in how global markets view the greenback. For Australian businesses, this isn’t abstract currency theory. It’s quite possibly hitting your pricing, your margins, and maybe even the assumptions that underpin your next three‑year plan.

The knock‑on effect? The Aussie dollar has surged.

From the high 50‑cent range barely twelve months ago, AUD/USD has climbed back above 70 cents, with some forecasters eyeing 75 or even 80 if the US dollar’s troubles deepen. Recent local interest rate moves in Australia have been covered extensively in the business press, so rather than re-hash the RBA’s decision yet again, let’s instead look at what’s really driving this global macro currency shake‑up and what it means when you’re signing contracts, ordering stock or pitching to offshore clients.

Why the US dollar is losing its shine

A weaker dollar isn’t just about one quarter of soft data or a surprise Fed cut. Several economic tectonic plates have shifted beneath the world’s reserve currency, and businesses that treat this as a temporary blip risk getting caught out.

Policy chaos and political interference

Washington has spent the past year turning currency markets into a spectator sport, and not the good kind.

President Trump’s return in January 2025 brought sweeping tariffs that peaked at an effective average rate of 27 per cent by April, the highest level in over a century. Steel, aluminium, cars, Chinese goods, even downstream derivatives—nothing was spared. 

Then came the tariff rollbacks, exemptions, negotiations, and public spats between the White House and the Federal Reserve over who actually controls monetary policy. Markets loathe uncertainty, and they’ve responded by dumping dollar assets whenever the headlines heat up.

Trump himself has openly embraced a weaker dollar as part of his “America First” industrial strategy, effectively using the currency as a competitive devaluation tool rather than a neutral benchmark. That pragmatism might suit US manufacturers, but it shreds the perception that the dollar is a predictable, apolitical store of value.

Institutions notice when safe haven status of an asset gets weaponised.

Interest rate divergence and Fed easing

After an aggressive tightening cycle, the Fed pivoted to cuts through 2025 and into early 2026, responding to softer inflation metrics and labour market cooling. Meanwhile, central banks in other economies – including the RBA – held steady or moved more slowly, shrinking the yield advantage that had propped up the dollar during its 2022‑2024 bull run. Lower relative returns on US Treasuries mean less foreign capital flows into dollar assets, which mechanically weakens the currency.

Some forecasters predict a “V‑shaped” dollar path in 2026: further softness in the first half as rate cuts continue, then a potential stabilisation if US growth and AI‑driven productivity gains reassert themselves. But even the optimists acknowledge heightened volatility and a permanently higher risk premium on holding USD versus the pre‑2025 baseline.

Fiscal fragility and debt fears

US government debt now exceeds $36 trillion,- this US Debt Clock website always makes interesting, if not somewhat scary, viewing! https://www.usdebtclock.org/  Annual deficits are running well above pre‑pandemic norms despite a mature expansion. Massive spending bills—including the “One Big Beautiful Bill” Act referenced in early 2026 forecasts—pour fuel on growth in the short term but raise long‑term questions about debt sustainability and whether future administrations will be tempted to inflate their way out.

Bond vigilantes haven’t staged a full revolt yet, but foreign central banks and sovereign wealth funds are quietly trimming their Treasury holdings and diversifying into other assets. This latter point is important not to be missed!  Even a marginal shift in reserve allocation away from dollars amplifies cyclical weakness when investor sentiment sours.

De‑dollarisation: slow burn, real impact

We’re not sating the greenback is about to lose its throne in some spectacular overnight crash.. But we are seeing a deliberate, incremental move by major economies to reduce their reliance on USD for trade invoicing, reserve holdings and financial plumbing.

China, Russia, India and several Gulf states have expanded bilateral currency swap lines, settled oil and commodity trades in local currencies, and increased gold purchases as a hedge against both dollar and geopolitical risk. The European Union and ASEAN blocs are exploring similar frameworks. Each agreement on its own is small, but collectively they represent a structural headwind to dollar demand that didn’t exist a decade ago.

When everyone diversifies a little, the aggregate effect is large.

How the Aussie dollar has rallied

Australia’s currency isn’t surging because our economy suddenly became the envy of the developed world. It’s rising largely because the US dollar is stepping back from an overextended position, and relative interest rates are doing the rest of the work.

The AUD bottomed out in the high 50‑cent range against the USD during 2025, weighed down by China’s property slowdown and aggressive Fed tightening. But as the Fed pivoted to cuts and the RBA held the cash rate near 3.60 per cent—with inflation still tracking in the mid‑3s—the interest differential swung sharply in Australia’s favour. Capital flows into Australian bonds and equities picked up, and the Aussie climbed back above 70 cents by late 2025 and has held that level into early 2026.

Commodity prices have played a supporting role, though less dramatically than in previous cycles. Iron ore and LNG remain solid despite softer Chinese construction activity, and global risk sentiment has improved enough to lift carry trades and high‑beta currencies like the AUD.

Several major forecasters now see the Aussie testing 75 cents or higher if US dollar weakness persists through the first half of 2026, with some outlier calls as high as 80 cents if policy volatility in Washington escalates. Even the conservative base case involves a materially stronger AUD than most businesses were budgeting twelve months ago.

Winners, losers and the messy middle

Currency moves create clear winners and losers, but most Australian businesses sit somewhere in the messy middle—part importer, part exporter, with offshore customers, foreign suppliers and complex hedging decisions that can’t be boiled down to a single trade.

Exporters: margin squeeze incoming

If you’re selling Australian goods or services priced in US dollars, a rising AUD is a direct hit to your revenue when you convert back to Australian dollars.

Take a Queensland grain exporter with a three‑year supply contract locked in at a fixed USD price. When that contract was signed at 62 cents, it looked attractive. Now at 71 cents, every container shipped delivers 15 per cent less AUD revenue, and if the currency keeps climbing toward 75 or 80, margins evaporate entirely unless you’ve hedged or built escalation clauses into your terms.

Tourism operators, education providers and professional services firms billing offshore clients face the same arithmetic. A stronger Aussie dollar makes Australian holidays, university degrees and consulting engagements more expensive in foreign currency terms, dampening demand at the margin. Competitors in cheaper currency zones—think Southeast Asia for tourism, or Canada for education—suddenly look more attractive to price‑sensitive buyers.

Your product didn’t change. Your price in foreign currency just went up.

Importers: rare breathing space

For businesses buying goods priced in US dollars—technology, machinery, pharmaceuticals, consumer electronics, industrial inputs—the stronger AUD translates directly into lower landed costs.

A Brisbane electronics retailer importing from US and Asian suppliers is already seeing relief. If a shipment cost USD 100,000 at 62 cents, it required AUD 161,290. At 71 cents, the same shipment costs AUD 140,845—a saving of over $20,000 that can either protect margins or fund more aggressive retail pricing to drive volume.

The catch: suppliers don’t always pass through currency moves immediately, especially if they’ve locked in their own hedges or are using the stronger AUD as an opportunity to rebuild their own margins after a tough couple of years. And if you’re importing from Europe or Japan rather than the US, the benefit depends on how those currencies are moving relative to both the USD and AUD – cross‑rates matter, and they’re usually not that simple to work out.

The volatility tax

Even if your net exposure to USD is neutral, heightened currency volatility imposes a cost. Forecasting gets harder. Pricing decisions require more frequent review. Hedging instruments become more expensive or require larger margin calls. Cash flow swings widen, stressing working capital and complicating capex planning.

Businesses that historically “rode out” FX moves without formal hedging may find that approach unworkable if the dollar’s structural decline means larger, more persistent swings rather than mean‑reverting noise. That’s a governance conversation for your board, not just a treasurer’s spreadsheet problem.

What Australian businesses should do now

Currency risk isn’t something you can eliminate, but you can manage it intelligently rather than hoping it goes away. Here’s what smart operators are doing.

1. Review your FX exposure—properly

Most businesses have a rough sense of their dollar exposure, but few have mapped it comprehensively across revenue contracts, supplier agreements, offshore financing and inter‑company flows.

Start with a simple matrix:

Once you’ve quantified your exposure, you can make rational decisions about whether to hedge, how much, and for how long. Hedging isn’t free, but neither is getting blindsided by a 10‑cent move in the Aussie dollar over eighteen months.

• Build FX clauses into contracts

If you’re negotiating a multi‑year supply or sales agreement denominated in USD, consider building in an FX adjustment mechanism. Options include annual price resets indexed to a published exchange rate, shared risk bands where both parties absorb moves within a range, or payment terms that blend USD and AUD to naturally hedge exposure.abc+3

These clauses are standard in large commodity contracts and infrastructure deals; there’s no reason mid‑market businesses can’t use simpler versions to protect themselves from extreme currency moves.

2. Rethink pricing and competitiveness

Exporters facing a structurally stronger AUD need to look hard at their value proposition. Can you absorb some of the margin hit to protect market share, or will you lose volume if you pass through the full cost? Are there premium segments where brand, quality or service insulate you from currency‑driven price sensitivity? Can you shift mix toward higher‑margin products that justify a higher price in foreign currency terms?

Importers, conversely, should be asking whether the cost relief from a stronger AUD is an opportunity to invest in growth—better inventory, faster delivery, sharper pricing—or simply a temporary margin boost that will reverse when the cycle turns.

3. Diversify funding and capital sources

If you’re considering offshore financing, the current environment demands extra diligence. A USD‑denominated loan looks cheaper in nominal terms when the dollar is weak, but if you’re earning AUD revenue and the Aussie subsequently weakens, your effective debt service cost in AUD terms can blow out fast.

Equally, foreign investors looking at Australian assets are making their own currency bets. A US private equity firm buying an Australian business in early 2026 is effectively paying a 15 per cent premium in USD terms compared to mid‑2025, purely because of the AUD move. That can affect valuations, deal structures and earn‑out terms in ways that aren’t immediately obvious until you model the FX sensitivity.

4. Scenario‑plan for a range of outcomes

The most likely path for the next 12‑18 months is continued USD softness and AUD strength, but tail risks exist in both directions. A sharp escalation in US‑China tensions, a Fed policy error, or a major commodity price shock could reverse the trend quickly.

Run your budget and cash flow models at three exchange rates: a base case around 72 cents, a bull case for USD strength at 65 cents, and a bear case for further USD weakness at 78 cents. Identify the thresholds where your business model breaks or your capital structure comes under stress, and make sure your board knows where those trip‑wires sit.

You can’t predict the currency. You can prepare for multiple versions of it.

The bigger picture: a less predictable world

The US dollar’s decline isn’t just a currency story. It’s a symptom of a broader shift in how global economic power is distributed, how policy is made in major economies, and how much trust markets place in the institutional frameworks that have underpinned the post‑war financial system.

For Australian businesses, that means planning for a world where FX volatility is higher, safe haven assumptions are weaker, and policy whiplash from Washington or Beijing can trigger sharp moves with little warning. The old playbook—where you could assume the USD would revert to a stable range and the RBA would move in predictable increments—is out of date.

Businesses that treat currency risk as a strategic issue, not just a finance department problem, will navigate this environment more successfully. That means governance frameworks that escalate FX decisions to senior leadership, risk appetites that are explicitly defined and monitored, and pricing and contract strategies that acknowledge currency as a first‑order variable, not an afterthought.

The winners in the next few years won’t be the ones who predicted the dollar’s path perfectly. They’ll be the ones who built enough flexibility, hedging and scenario planning into their operations that they could adapt quickly when the currency surprised them.

Because the chances are it will.

This article is for general information purposes only and does not constitute financial or tax advice. Businesses should consult with their accountant, financial adviser and FX specialist before making hedging or capital structure decisions. Currency markets are volatile and past performance is not indicative of future results.