A stronger Aussie dollar against the greenback does have its downsides. (Source: Getty\/Yahoo Finance) <\/p>\n
The Australian dollar is suddenly stronger \u2013 popping back over 70 US cents this week for the first time in several years. But is that good? Because times have changed and a \u201cstronger\u201d Australian dollar can now make your personal finances a lot weaker<\/a>.<\/p>\n The reason the Aussie dollar has jumped this week is Donald Trump<\/a>. The US menace is deliberately talking down his country’s currency, which has long been the world’s “reserve currency” for global trade.<\/p>\n \u201cI think it\u2019s great,\u201d he said this week, when asked about the greenback’s falling value. \u201cI think the value of the dollar \u2013 look at the business we\u2019re doing. The dollar\u2019s doing great.\u201d<\/p>\n RELATED<\/p>\n Trump\u2019s actions were already creating turmoil in global currency markets, and his admission that he likes it only extended the trend. Some are even touting the demise of the reserve currency as money shifts from US assets and gold continues to surge.<\/p>\n As the next chart shows, the Aussie dollar hasn\u2019t seen 70 US cents for a few years.<\/p>\n The last time our dollar was over 70 cents consistently was back in 2022, and since then, things have shifted.<\/p>\n Australia is one of the richest countries in the world. We own a lot of assets. Housing obviously. But also superannuation. That\u2019s where our currency exposure comes from. Because our super is no longer just invested onshore. Instead, we own vast amounts of foreign assets<\/a>.<\/p>\n And when our dollar rises the value of those assets falls, in Australian dollar terms.<\/p>\n For example, if you bought one Apple share a year ago, you spent US$237 to buy that share. Over the year the USD value of the tech company has risen to US$257 a share \u2013 a small but welcome gain. However you needed to spend A$378 to get the US dollars to buy in, and if you sell the share and change back now, you will get A$366: A loss.<\/p>\n Likewise if you\u2019ve owned Bitcoin over the past 12 months, you\u2019ve seen it fall in USD by 13 per cent. But in AUD terms it is down 23 per cent, as our dollar keeps firming.<\/p>\n This is not some minor, esoteric point. Australian offshore investment is enormous. Our superannuation system is one of the largest pools of assets in the world, and it is far larger now than the Australian stock market. So we have invested it all over the place. In foreign shares, unlisted assets like infrastructure, and bonds.<\/p>\n \u201cInternational investment allocation has surpassed 50% for the first time, rising from 47.8% in 2023 to 50.9% in 2025,\u201d according to the latest NAB study of our trillions in super<\/a>. And it is largely not hedged, because hedges cost money to maintain and these assets are held for the long term.<\/p>\n We have over $3 trillion in super. Half of it is offshore. Just a 1 per cent rise in the Aussie dollar can cause a $15 billion wobble in our wealth. And in the last week alone the dollar has risen by more like 4 per cent. So our wealth has taken a roughly $60 billion hit.<\/p>\n This hit is particularly strong for the wealthiest Australians \u2013 the older generations who drive a lot of our consumption spending.<\/p>\n It\u2019s not all bad news, however. A stronger dollar It means the Aussie dollar buys more foreign goods. If we turn our assets back into cash and then try to buy imports, we will feel richer. That\u2019s good news for cars and fuel, clothes and electronics. Those are mostly imported. But electricity bills, meat and milk, rent, health and education are not imports and they are a hefty part of our spending.<\/p>\n While Trump is behind the spike in the Aussie dollar, the dollar was already rising on expectations of higher interest rates. Markets are now expecting the RBA to hike this year.<\/p>\n Higher interest rates force a stronger Australian dollar. How does that work? When Aussie returns are higher, foreign investors want to buy in, and need to buy AUD to invest here. That extra demand in currency market pushes up our dollar.<\/p>\n The rise in the dollar is helpful for the RBA\u2019s goal of cooling the economy \u2013 it is meant, in turn, to make us to buy more imports, and make life harder for Aussie companies. Reducing the value of our offshore wealth is a side effect, but the RBA might be pleased with it.<\/p>\n People spend less when they feel less wealthy, so our higher offshore wealth holdings might also make rate hikes more effective in cooling the economy.<\/p>\n The US situation is different \u2013 Trump is keen to get US companies exporting, and a lower US dollar is helpful for that goal. The world can afford more MacBooks, Nikes and Ralph Lauren polos when the USD is lower. If you trust Trump\u2019s economic management then remaining invested in the US can make sense, even if the US dollar is falling.<\/p>\n Get the latest Yahoo Finance news – follow us on Facebook<\/a>, LinkedIn<\/a> and Instagram<\/a>.<\/p>\n It’s the best time in a while to buy US assets. <\/p>\n
US President Donald Trump and Federal Reserve Chair Jerome Powell are not seeing eye to eye. (Source: Reuters) \u00b7 REUTERS \/ Reuters <\/p>\n