The Aussie dollar just hit a new 2-year high. Here's what that means

The Australian dollar has just broken a 2-year high, and is still trading above 74 US cents today. Here's why, and what it means.

ASX shares Australian dollar symbol on digital chart with green up arrow

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Australian dollar has just hit a new 2-year high.

Yes, our national currency hit a new high overnight. According to reporting in the Australian Financial Review (AFR) this morning, the dollar hit a high of 74.53 US cents last night, which is reportedly its highest level since August 2018 – more than 2 years ago. The dollar has pulled back somewhat since, and is trading at 74.17 US cents at the time of writing.

Why the dollar is on the rise

So why is our dollar pushing these new highs? It's likely that a significant factor is the rising prices of commodities that we have witnessed over the past month. As I'm sure most readers would be aware, mining and processing of commodities like iron ore, gold, oil and coal form a large component of the Australian economy. And over the past month alone, we have seen iron ore go from under US$120 per tonne to today's price of more than US$145 per tonne.

Likewise, Brent crude oil has appreciated from just under US$38 per barrel a month ago to today's price of US$49.25. And since 30 November, gold has risen from ~US$1,770 per ounce to today's price of US$1,865.50 per ounce.

Because Australia exports large volumes of these commodities (particularly iron ore), rising prices mean overseas buyers have to exchange more US dollars for Australian dollars, increasing the demand for Aussie dollars. This, under the laws of supply and demand, has the effect of pushing our dollar up in response.

So is the Aussie dollar going to continue to climb and make new highs? Are we heading back, perhaps, to the days of parity with the greenback?

Well, the AFR quotes currency strategists from National Australia Bank Ltd (ASX: NAB) on that matter:

Markets remain in consolidation mode as we await Brexit and US stimulus developments… After no breakthrough, PM Johnson and the EU Commission President will now meet in person in coming days, so hopes for an EU-UK trade deal survive another day. Meanwhile US Congress bipartisan negotiators are still ongoing on a $908 billion pandemic relief package.

So, that's a 'not anytime soon' from NAB, it seems.

What does this mean for ASX shares?

As I discussed a fortnight ago, a higher dollar is, in simplistic terms, good news for companies that import goods and services, and bad news for those that export. Thus, companies like JB Hi-Fi Limited (ASX: JBH), Bapcor Ltd (ASX: BAP) and Harvey Norman Holdings Limited (ASX: HVN) are probably cheering this development, as it allows them to import TVs, car parts and computers at a lower cost.

But for miners like BHP Group Ltd (ASX: BHP) and Newcrest Mining Ltd (ASX: NCM), as well as any other company that sends products overseas, the news isn't so sweet (although the miners do have high commodity prices to help ease the pain).

Motley Fool contributor Sebastian Bowen owns shares of National Australia Bank Limited and Newcrest Mining Limited. The Motley Fool Australia owns shares of and has recommended Bapcor. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

Broker written in white with a man drawing a yellow underline.
Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »

Woman with a scared look has hands on her face.
Broker Notes

Bapcor shares fell more than 30% yesterday. Should investors buy in the dip?

Is this a value opportunity?

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Broker Notes

Broker raises price targets on 2 ASX 200 shares to buy

Ord Minnett has just upped its 12-month share price targets on 2 buy-rated ASX 200 stocks.

Read more »

Man with rocket wings which have flames coming out of them.
Share Gainers

Guess which ASX All Ords stock just rocketed 34% on strong earnings growth

Investors just sent this ASX All Ords stock surging 34%. Here’s what’s happening.

Read more »

A male investor wearing a blue shirt looks off to the side with a miffed look on his face as the share price declines.
Share Fallers

Why DroneShield, Gentrack, Metals X, and Northern Star shares are tumbling today

These shares are ending the week in the red. But why?

Read more »

A businessman looking at his digital tablet or strategy planning in hotel conference lobby. He is happy at achieving financial goals.
Share Gainers

Why Dimerix, Newmont, Regal Partners, and Titomic shares are storming higher

These shares are having a good finish to the week. Let's see why.

Read more »

Man drawing an upward line on a bar graph symbolising a rising share price.
Broker Notes

Morgans says these ASX can rise 30% to 50%

The broker has good things to say about these shares.

Read more »

Two businessmen look out at the city from the top of a tall building.
Broker Notes

2 ASX REITs to buy in July: expert

Is it time to consider ASX REITs?

Read more »