The Australian dollar was trading just above 70 US cents in mid-October, and the RBA's own research points to the exchange rate as the most important channel through which interest rates influence inflation.

At 4.00 pm on 14 October 2026, the RBA's published exchange rate for the Australian dollar against the US dollar was 0.7002, meaning one Australian dollar bought just over 70 US cents. For shoppers, that number can seem remote from the supermarket aisle or the electronics store. Yet the value of the currency is one of the key links between global prices and what Australians pay at the checkout, and it sits at the centre of how the RBA thinks rate rises work.

This explainer looks at where the dollar stands, how a currency move generally reaches consumer prices, and what the RBA has said about that connection, without forecasting where the dollar or prices will go next.

Where the dollar stands

The RBA publishes exchange rates for the Australian dollar against a range of currencies. As at 4.00 pm on 14 October 2026, they were:

  • US dollar: 0.7002
  • Chinese renminbi: 4.6855
  • Japanese yen: 110.74
  • Euro: 0.6246
  • Trade-weighted Index (TWI): 65.0

The TWI measures the Australian dollar against a basket of trading partners' currencies, which gives a broader view than the US dollar rate alone. According to the minutes of the Monetary Policy Board's September meeting, the Australian dollar had depreciated a little in trade-weighted terms since the previous meeting, but was around 5 per cent higher since the start of the year. The minutes also said the real TWI was "somewhat above the range of estimates" of its long-run equilibrium level. A real exchange rate adjusts for differences in inflation between Australia and its trading partners. In general terms, sitting above those estimates means the currency, adjusted for relative prices, is on the stronger side of where models suggest it would settle over the long run.

It is the trade-weighted measure, rather than the US dollar rate, that the minutes describe as around 5 per cent higher since the start of the year. That distinction matters, because the currency can move differently against individual currencies.

How a currency move reaches the checkout

The general mechanism is straightforward. Many goods sold in Australia, or the components used to make them, are priced in foreign currencies. When the Australian dollar buys more foreign currency, importers need fewer Australian dollars to pay for the same goods. All else equal, that lowers the local-currency cost of imports.

Whether and how quickly that shows up on shelves depends on several factors:

  • Contracts and hedging. Importers may have locked in prices or currency rates in advance, which can delay the effect.
  • Competition and margins. Businesses may pass savings on, or they may absorb them to rebuild margins squeezed by other costs.
  • Other cost pressures. A firmer currency can be offset if the underlying foreign price is rising at the same time.

That last point is particularly relevant now. Governor Michele Bullock said at her 29 September media conference that "The conflict in the Middle East has escalated again in recent weeks, and oil prices have risen significantly," and that "the global AI investment boom has driven significant price rises for some inputs". The minutes recorded that domestic petrol and diesel prices were 13 per cent higher than forecast in August. A stronger currency can soften the local impact of rising global prices, but it does not necessarily cancel them out.

The RBA's exchange-rate channel

Monetary policy works through several channels: borrowing costs for households and businesses, savings and spending decisions, asset prices and the exchange rate. In explaining the September decision to raise the cash rate target by 25 basis points to 4.60 per cent, Bullock highlighted the last of these.

"And raising interest rates impacts import prices," she said. "And then according to our research, in fact, the most important channel is the exchange rate channel."

In broad terms, higher interest rates in Australia relative to other countries can make Australian-dollar assets more attractive to investors, supporting the currency. A stronger currency then feeds through to lower import prices in local terms. That is one way in which a rate rise can affect inflation even before its effects on household spending fully play out.

The global backdrop complicates that picture. The minutes noted that several central banks abroad had already raised interest rates and that markets expected tightening in most major advanced economies over 2026–27. Because exchange rates reflect relative conditions, moves by other central banks also influence where the Australian dollar settles.

Keeping inflation in perspective

The currency is only one input into the inflation picture. Monthly headline CPI was 4.0 per cent over the year to August 2026. Underlying inflation, measured by the trimmed mean, was 3.6 per cent over the year to the June quarter, against a target range of 2–3 per cent. The RBA's staff judged the recent upside surprise in inflation more likely reflected domestic capacity pressures than imported cost shocks, and Bullock said: "Inflation is too high and has been driven by domestic capacity pressures."

That suggests a firmer dollar may help at the margin on traded goods, but services and other domestically driven prices are less directly affected by the exchange rate. Bullock also offered a yardstick for progress: quarterly inflation of about 0.6 per cent is consistent with roughly 2.5 per cent a year, the midpoint of the target. The Board's statement framed its priority this way: "The Board remains focused on ensuring that high inflation does not become embedded." The next CPI update is due on 28 October 2026, followed by the next cash rate decision at 2.30 pm on 3 November 2026.

The bottom line

The Australian dollar was just above 70 US cents on 14 October 2026, and the trade-weighted index was around 5 per cent higher since the start of the year, according to the September minutes. In general, a firmer currency lowers the local cost of imports, and the RBA's research identifies the exchange rate as the most important channel through which rate rises affect inflation. How much of that reaches the checkout depends on business pricing decisions, hedging and the direction of global prices, particularly energy.