Currency appreciation is a rise in one currency’s value against another under a floating exchange rate. When the Australian dollar appreciates against the US dollar, each dollar buys more US currency. The opposite move is depreciation, a fall in relative value.
Appreciation is always relative: a currency strengthens against another currency, not in isolation. The Australian dollar can appreciate against the yen while depreciating against the US dollar on the same day, which is why the trade-weighted index exists to summarise the overall position.
The practical effects run in both directions. A stronger Australian dollar makes overseas travel, imports and foreign online purchases cheaper for Australians, while making Australian exports and inbound tourism more expensive for the rest of the world. Depreciation reverses each of those effects, and also tends to add to import prices over time.
Appreciation on one currency and depreciation on the other are different percentages for the same event, and the arithmetic shows why. Suppose a currency rises from 0.50 to 0.55 units of another. Divide 0.55 by 0.50 for a ratio of 1.10, so the rise is 10 per cent. Now invert both figures. The second currency has gone from 2.0000 to 1.8182 units of the first. Divide 1.8182 by 2.0000 for a ratio of 0.9091, so the fall is 9.09 per cent. One movement, two percentages, because each is measured against a different starting point. The gap grows with the size of the move. At the extreme it is plain: a currency that doubles against another has appreciated 100 per cent, while the other has depreciated 50 per cent.
Neither move is "good" or "bad" in itself; it depends on whether you are buying foreign currency or earning it. Tradergy reports the moves factually and leaves the judgement to the reader.
Longer read: What happened when the Australian dollar was floated. The decision was taken on a Friday afternoon and took effect the following Monday. What it replaced, what the Reserve Bank expected of itself afterwards, and how rarely it has stepped in since.
The practical companion to this definition is the currency converter pages.
Related terms
Floating exchange rate · Trade-weighted index (TWI) · Currency pair · All terms
Primary authority: RBA explainer: exchange rates. Definition reviewed against the authority’s published material; this page is reference information, not advice.
Common questions
What makes a currency appreciate?
Anything that raises relative demand for it: higher interest-rate expectations compared with other countries, stronger commodity prices for an exporter like Australia, or a general shift of global capital toward the currency. The mechanism is ordinary supply and demand.
Is a stronger Australian dollar good for me?
It depends on your position. It stretches further for travel, imports and overseas transfers, but it makes Australian goods dearer abroad, which affects exporters and tourism. The same move helps some Australians and works against others.
How is appreciation different under a peg?
Under a peg the exchange rate cannot appreciate in the market; adjustment happens only if the authorities move the peg, which is called revaluation. Appreciation and depreciation describe market-driven moves under floating rates; revaluation and devaluation are their administered counterparts.