One of the most dramatic changes we have seen on financial markets over the past month has not come from the ASX, nor from ASX shares, but from the Aussie dollar.
Less than a month ago, one Australian dollar was buying about 64.5 US cents, a level common to have seen over the past 12 months. But as it stands today, that same Aussie dollar will fetch 66.45 US cents. That's a rise of about 3% in just a few weeks.
That's not even the highest the Aussie has gotten in the last week, either. On Friday, the local currency reached as much as 66.7 US cents – close to a 52-week high.
These might not seem like newsworthy moves. But a rising dollar has profound impacts on many things in our economy. Let's talk about those today.
How does a rising Aussie dollar affect ASX shares?
Currency movements don't directly impact all ASX shares. But they do have secondary effects that filter down into most corners of the economy. The largest impact of a rising dollar on the economy is on imports and exports. Put simply, if the dollar strengthens in value against other currencies, it makes our imports cheaper and our exports more expensive.
That means that a rising dollar helps any company that imports goods into Australia to sell to us. Conversely, it hurts the bottom line of any ASX share that sends goods overseas for sale in other markets.
As such, if I were a shareholder in ASX shares like JB Hi-Fi Ltd (ASX: JBH), Harvey Norman Holdings Ltd (ASX: HVN), Ampol Ltd (ASX: ALD), or Wesfarmers Ltd (ASX: WES), I would be cheering the Aussie dollar's rise. These companies habitually buy goods like televisions, refrigerators, furniture, refined petroleum (in Ampol's case), electronics and appliances and, in Wesfarmers' case, almost any consumer goods you can think of, from countries that specialise in cheap manufacturing. That's usually China, but also markets like Vietnam, Korea, and Thailand.
If the Aussie dollar rises, as it has been doing, the cost of buying these goods wholesale falls. Those savings can either be banked by the company or passed on to consumers as lower prices. That's good news for shareholders, either way.
Cheaper petrol and diesel, assuming no underlying change in the oil price itself, is also a potential net benefit for the entire economy.
However, the dollar is a double-edged sword. If I owned shares of BHP Group Ltd (ASX: BHP), Fortescue Ltd (ASX: FMG), or any other ASX share that exports internationally, I would be eyeing off the rising dollar with trepidation. Just as it lowers the cost of importing goods, the rising Aussie dollar increases export costs. A tonne of iron ore, for example, is sold in US dollars, and then the profits are brought home in Aussie dollars. This rise in our local dollar means that those US dollars are worth fewer Aussie dollars when swapped over.
Foolish Takeaway
The profitability of ASX shares can be, and is, affected by what happens with our dollar. With interest rate cuts seemingly accelerating in the United States, and with our own RBA hitting pause, it's well worth keeping an eye on this space in 2026. We might see the Aussie dollar go even higher next year.
