Australian Dollar Fundamentals (AUD)

Australian dollar fundamentals start in China. The Aussie tends to rise when Chinese demand and global growth are strong and to fall hard when investors get nervous. The Reserve Bank of Australia’s rate path matters too, through the gap with other central banks, but the outside world usually sets the direction. So read the world first and Australia second.

What Australia sells, and who buys it

China bought A$188.7 billion of Australian goods and services in 2024-25, out of A$646.6 billion in total exports (ABS). That is about 29 percent, more than the next three buyers (Japan, the US and South Korea) together.

Most of it comes out of the ground. Resources make up about 59 percent of Australia’s exports (RBA), China takes 45 percent of those resource exports, and iron ore is a large share of what it buys (RBA, May 2025).

Iron ore goes into steel, and Chinese steel goes into buildings and infrastructure. When Chinese construction slows, the prices Australia gets for its exports tend to fall against the prices it pays for imports. That ratio is the terms of trade, and the Aussie tends to move with it. More on how that works is in What Is a Commodity Currency?

A Chinese data release or a slide in the iron ore price can move AUD/USD as much as anything Australia publishes, so if you trade the Aussie, keep both on your screen.

Month to month, though, the link with iron ore is looser than that suggests. Until 2008 the IMF’s monthly iron ore price changed only once or twice a year, so there is no monthly link to measure before 2009. From 2009 to 2025 the correlation between the monthly change in iron ore and the monthly change in AUD/USD was 0.30, where 1 would mean they always moved together in proportion and 0 no steady link. It was 0.19 from 2009 to 2014, 0.42 from 2015 to 2019 and 0.38 from 2020 to 2025, and in 2009, 2012 and 2024 it was below zero. The two moved the same way in 125 of 204 months. The figures use monthly averages, iron ore from the IMF and AUD/USD from the Federal Reserve. They describe the past and can change, and they show iron ore as one input among several rather than the whole story.

The Reserve Bank of Australia

The Reserve Bank of Australia aims for inflation between 2 and 3 percent and, alongside it, sustained full employment (RBA). Since 1 March 2025 its rate decisions belong to a separate Monetary Policy Board of nine members.

The Board meets eight times a year, from a Monday afternoon into the Tuesday, and announces the outcome at 2.30 pm on the second day. The Governor then explains it at a media conference (RBA). The statement includes an unattributed record of the vote, so you see how split the Board was but not who voted which way (RBA). The decisions are on RBA Interest Rate Decision.

The market trades the expected path of the cash rate against the paths of other central banks. You can compare the rates on Interest rate differential by currency pair and Real interest rates by currency, and follow the main pair on AUD/USD fundamentals. A firm RBA does not protect the Aussie from a global sell-off, though.

Australian inflation in the changeover

Since 26 November 2025 the ABS has published a complete monthly CPI, now Australia’s primary measure of headline inflation (ABS). Its releases are on Australia Inflation Rate (CPI).

The catch is that the RBA did not switch at the same time. In a 2025 technical note it said it would keep its focus on underlying inflation from the quarterly CPI, the trimmed mean above all, and move to monthly measures once a longer history allows monthly seasonal patterns to be established (RBA technical note). So while that holds, a hot monthly print can move the Aussie, but the quarterly trimmed mean is the number the RBA has said it watches. Check its latest statement for which one it now leads with. Trimmed mean is a core measure, explained in What Is Core Inflation?

Australia GDP Growth Rate and the Australia Manufacturing PMI matter for what they say about spare capacity, and the price moves on the distance between each result and its forecast.

Carry, AUD/JPY and August 2024

When Australian rates sit well above Japanese ones, traders borrow yen and buy Aussie to earn the difference. That makes AUD/JPY a gauge of risk appetite. It tends to climb slowly while the trade is comfortable and drop fast when everyone closes it at once. The mechanics are in Carry Trade Guide: How It Works and Why It Unwinds.

Early August 2024 showed how fast: after a weak US data release, FX carry trades “were hit hard” as leveraged positions were cut, according to the BIS (BIS Bulletin 90). An AUD/JPY long loses on both legs in a scare like that, because the yen tends to jump while the Aussie falls; the yen side is in Japanese Yen Fundamentals (JPY).

Positioning in a risk currency

Because the Aussie is a favourite vehicle for risk and carry trades, positioning can pile up on one side. The Australian dollar COT report counts the leveraged funds’ longs and shorts in Aussie futures each week. Read it next to China and iron ore: a big long while Chinese demand is softening has the fundamentals and the crowd on opposite sides.

Its closest cousin, with dairy in place of iron ore, is in New Zealand Dollar Fundamentals (NZD).