Australian Dollar

The Australian dollar is the official currency of Australia and several Pacific territories, and it ranks among the most traded currencies in the world. Traders call it the Aussie, and it punches well above the size of Australia's economy in daily currency turnover.

Australia is a resource powerhouse, exporting huge volumes of iron ore, coal, natural gas, and gold, much of it to Asia. That makes the Aussie a classic commodity currency, closely tied to raw-material prices and to the health of its biggest customer, China.

The Reserve Bank of Australia issues the dollar and sets interest rates, targeting inflation of 2 to 3 percent on average. It lets the currency float freely, a policy in place since the Australian dollar was floated in December 1983.

Before the float, Australia pegged its currency, first to the British pound and later to the US dollar and a basket. The decimal Australian dollar itself replaced the Australian pound in 1966, at a rate of two dollars to the pound.

The Aussie is one of the market's favorite ways to express a view on global growth and on China in particular. When investors are optimistic about the world economy, the Australian dollar often gains; when they turn cautious, it tends to give ground.

Because it trades around the clock and reacts quickly to risk sentiment, the Aussie is widely used as a so-called risk currency. Its moves can signal shifts in global mood well beyond Australia, which is why traders far from Sydney keep an eye on it.

Australia kept inflation broadly contained for decades under its 2 to 3 percent target, before the global surge after 2021 pushed it higher for a time. As with every currency, the Aussie's purchasing power erodes gradually in normal years and faster when inflation runs hot.

The commodity tilt cuts both ways for Australian savers. A strong resource cycle can lift the currency and make imports cheaper, while a downturn in commodity prices can do the reverse, so the cost of buying from abroad shifts with the mining cycle.

The Australian dollar is usually quoted as the number of US dollars one Aussie buys. It has ranged widely over the decades, trading above parity with the US dollar during the commodity boom around 2011 and below 70 US cents during later downturns.

That wide range reflects how sensitive the Aussie is to global growth and commodity cycles. The Australian dollar is on one side of about 6 percent of global foreign exchange trades and forms a small but real part of central bank reserves.