KEY POINTS
- Two rate decisions land in two days: the RBA on Tuesday and the US Fed on Wednesday. The bigger story for your portfolio is the Aussie dollar.
- Australia’s cash rate (4.35%) already sits above the US rate (a 3.50% to 3.75% range). If the RBA signals more hikes ahead while the Fed holds, the gap widens and tends to lift the Aussie.
- A stronger Aussie hurts US dollar earners like CSL (ASX:CSL), ResMed (ASX:RMD) and the big miners because their US income is worth less back home.
- It helps importers and retailers like JB Hi-Fi (ASX:JBH) and Wesfarmers (ASX:WES), because the goods they buy from overseas get cheaper.
The market is fixated on whether the RBA moves rates on Tuesday, but the bigger question for your portfolio is the currency. Australia’s cash rate sits at 4.35%, above the US rate of 3.50% to 3.75%, and two decisions land in two days: the RBA on Tuesday and the US Federal Reserve on Wednesday. The Aussie is trading near US$0.70, down from about US$0.72 in late May. Why does this matter? Because a rising Aussie quietly helps some ASX shares and hurts others, often more than the rate decision itself.
Why the Rate Gap Drives the Aussie
In simple terms, money chases yield. When Australian rates sit above US rates, global investors earn more by holding Aussie dollars, so they buy them, and that pushes the currency up. The gap between the two countries’ rates is the biggest driver of the AUD/USD rate.
The RBA has already hiked three times this year to reach 4.35%, and the question now is whether it is finished. Most economists expect a hold on Tuesday, but the tone matters. Westpac still sees more hikes later in 2026, while the Fed is widely expected to stay put after US inflation jumped to 4.2% in May, its highest in three years. So the gap already favours Australia, and the real signal will be whether the RBA hints at more to come. If it does, the gap widens, which tends to support a firmer Aussie.
Some forecasters already see the currency drifting back towards US$0.73 over the next year, though a risk-off shock or a wobble in China could just as easily send it lower.
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A Stronger Aussie Squeezes US Dollar Earners
Here is the catch that many investors miss. A rising Aussie is a headwind for companies that earn in US dollars but report their results in Aussie dollars, because those US sales convert into fewer dollars back home.
The most exposed are healthcare exporters like CSL, ResMed and Cochlear (ASX:COH), building products maker James Hardie (ASX:JHX), which earns heavily in North America, and the big miners, since commodities are priced in US dollars. None of this makes them bad businesses. It just means a rising currency works against their reported earnings, worth keeping in mind before you read too much into a soft result.
Who Wins: Importers and Retailers
The flip side is just as real. A stronger Aussie makes imported goods cheaper, which helps companies that buy from overseas and sell at home. Retailers like JB Hi-Fi, Harvey Norman (ASX:HVN), Wesfarmers and Nick Scali (ASX:NCK) bring in stock priced in US dollars, so a firmer currency lowers their costs and can support margins. Travel names benefit, too.
The honest caveat: a currency tailwind only goes so far. If rates stay higher for longer, household budgets stay tight, and weaker demand can outweigh the boost from cheaper imports. So treat the currency as one helpful factor, not the whole story. What to watch over the two days: the RBA’s tone on Tuesday, the Fed on Wednesday, and how the Aussie moves across the window. That reaction will tell you which side of your portfolio is about to feel the pressure.
