Morgans Chief Economist Michael Knox wrote a great note a couple of weeks ago on Why is the Australian dollar so strong. It’s a nice, clear description of what’s been happening to the Australian dollar in recent months. Michael concluded his note:

The rally in the Australian dollar between March and June 2020, demonstrates that sometimes things in economics can work exactly the same as they do in theory. The aggressive cuts in the Fed funds rate by the US Federal Reserve have led to a situation where US bond yields fell dramatically, relative to Australian bond yields.

This yield advantage then caused the rapid recovery in the Australian dollar which has occurred since March.

Check out my new video in which I discuss the points Michael made in the note and illustrate them with the relevant data: