Rabobank’s senior currency strategist Jane Foley has an interesting note that goes some way to explaining the shifts in the exchange rate between the Australian dollar and the globally dominant US greenback, a tussle we generally discuss a lot and call: AUD/USD.

(Having lived in the US I can tell you, they barely think of us warmly but barely at all beyond Crocodile Dundee, Margot Robbie and Chris Hemsworth. Our average job would probably be considered ‘beach lifeguard’).

Here’s a graph of that exchange rate compared to global iron ore prices (the magic rocks we dig up but are bought and sold in US currency on world markets).

See the split at the end?

“For many years, the AUD had a reputation for being sensitive to risk appetite,” she writes.

Of the various explanations for this, our mass export of  bulk commodities (iron ore, coal, etc) is key.

“Demand for many of these can be viewed as a litmus test for the level of global activity. For good reason, slowing global growth tends to result in downside pressures for the commodities currencies.”

But that hasn’t been happening as much, as the graph shows.

Ms Foley suggests its because we’ve been running a current account surplus since 2019, giving us more stability than in the past.

“In addition to a current account surplus, Australian fundamentals boast a very small budget deficit compared with most other G10 economies. The country has also had a better growth performance than its peers. In essence, on the back of relatively strong Australian fundamentals, the AUD’s sensitivity to risk should have lessened”

That sounds like an economists pat on the back to the Treasury.

What does it all mean? Likely a stronger ‘Aussie’, soon, closer to 70-cents for every one US dollar.

“We maintain our target of AUD/USD 0.70 and have brought this forward from a 9-month view to a 6- month forecast”