Introduction:

The Australian Dollar (AUD) has surged by 10%, reaching a 9-month high, creating the illusion of a strong currency. While it may seem like good news, the reality is more complex. The cost of shopping online has increased, travel is becoming more expensive, and the question remains: Has the AUD really appreciated?

1. Australian Dollar Continues to Rise, Reaches 9-Month High

On July 24, the Australian Dollar to US Dollar (AUD/USD) exchange rate surged to 0.6603, marking the highest point in 9 months since November 2024.

Many in the media interpreted this as a sign of the AUD strengthening and Australia's economic stability. Some even predicted the AUD could rise to 0.70 by the end of the year.

However, many Australians feel differently, especially those engaged in international shopping or travel.

The recent AUD rise was largely driven by external factors:

Trade agreements between the US, Japan, the Philippines, and Indonesia, as well as expectations of new deals between the Trump administration and the EU.

Upcoming US-China trade talks in Sweden are expected to ease tensions in the global trade war, boosting market risk sentiment. As a result, risk-sensitive currencies like the AUD benefitted.

Additionally, the Reserve Bank of Australia (RBA) adopted a hawkish stance, which also provided support for the AUD. The central bank's minutes suggested that most members were hesitant to cut rates prematurely, citing a reduction in trade war risks. This was perceived positively by the market, further strengthening the AUD.

However, experts caution that the AUD's recent gains may not last, as trade war news could significantly impact its value. If negotiations between the US-EU or China-US stall, risk aversion might cause the AUD to decline rapidly.

Westpac and NAB forecasts suggest that the AUD could reach 0.67 or even 0.70 by the end of 2025, but these predictions are contingent on global political stability.

2. Shopping Abroad Becomes More Expensive, Is the AUD Really Strong?

Despite the apparent rise in the AUD, many Australians have noticed an odd trend: while the AUD may appear to be strengthening, shopping online or planning a trip overseas seems to cost more.

For instance, shopping from overseas has become more expensive, travel to Europe, Japan, and Korea is costing more, and even buying luxury goods no longer feels like a bargain.

So, has the AUD really appreciated?

While it seems like the AUD has gained 10% in 2025, it is important to understand that the exchange rate is only part of the story.

After Donald Trump's re-election and the subsequent rise in policy uncertainty, the USD has weakened significantly. In fact, major currencies like the Euro, Japanese Yen, and Swiss Franc have also appreciated sharply against the USD, with the Euro rising by over 15%.

Thus, the AUD's rise is more related to a weakening USD rather than a genuine appreciation of the AUD itself.

When comparing the AUD to other currencies (not just the USD), its purchasing power has not increased, and in some cases, it has even weakened.

This explains why many Australians are feeling like shopping from overseas is more expensive. The AUD's relative weakness against other major currencies is why the cost of items in Europe, Japan, or China has risen for Australians.

For example, while the AUD/USD has increased, the AUD/EUR has declined this year, causing a rise in the cost of shopping in Europe. Similarly, the AUD/CNY has remained weak, making Chinese imports and travel more expensive for Australians.

3. Illusory Strength of the AUD: Hidden Inflation Risks for All Australians

While the AUD/USD rise might appear to be a sign of strength, it actually conceals deeper, more troubling impacts on Australians' lives.

Despite the strong exchange rate, the AUD's decline against other currencies is gradually eroding Australian purchasing power. This is not just about higher prices for overseas shopping or travel; it is affecting everyday life.

Australia is a highly import-dependent country, with a significant portion of goods coming from the EU, Japan, and China. If the AUD weakens against these currencies, the prices of electronics, appliances, and even auto parts increase, even if the AUD is strengthening against the USD.

For everyday consumers, imported goods are more expensive, which directly impacts supermarket bills, online shopping, and retail prices. The cost of living is quietly rising.

Moreover, the Reserve Bank of Australia (RBA) may be misled by the AUD's apparent strength. If the AUD rises against the USD but weakens against other currencies, the RBA may overestimate the strength of the economy and potentially mismanage interest rates.

Strong AUD could hurt exports and damage the resource sector.

At the same time, weakness against non-USD currencies could increase import inflation.

This dual pressure results in economic instability, with many Australian businesses, especially small and medium-sized enterprises (SMEs) that rely on imports or cross-border logistics, facing rising operating costs.

For these businesses, the cost of doing business is increasing, and they may struggle to pass on these costs to consumers. As a result, profit margins are squeezed, leading to service cuts, layoffs, and even closures.

For ordinary employees, wage growth stagnates, further reducing consumer spending. This stagnation in wages, combined with rising costs, weakens the overall economy.

Additionally, the illusory strength of the AUD has led to foreign capital becoming more cautious. The lack of support for the AUD from a revived manufacturing sector or economic diversification means foreign investment may start to pull back from Australian stocks and real estate, impacting the broader asset market.

Conclusion:

From an international perspective, the recent rise in the AUD is more of a "relative appreciation" due to the decline of the USD rather than a true reflection of the Australian Dollar's inherent strength.

The real issue is that, while the AUD might appear to be strengthening on paper, it is a "currency illusion". The true value of the Australian Dollar remains weak, especially when compared to other major currencies.

The long-term outlook for the AUD depends on Australia's economic resilience. Without significant structural changes, every increase in the AUD could simply be masking underlying economic issues, leaving Australians facing a higher cost of living without a substantial improvement in their purchasing power.