The Australian dollar fell as much 1% on Friday after the deputy governor of the country's central bank said that overseas rate increases did not necessarily mean the Reserve Bank of Australia (RBA) would follow suit.
Guy Debelle said in a speech in Adelaide that Australian interest rates and policy decisions were made in line with domestic inflation and growth objectives.
He explained that because monetary policy settings were more expansionary in the rest of world, the Australian dollar had come under upward pressure, putting a strain on its export-led economy and counteracting the benefits of faster global growth.
Debelle said: "Just as the policy rate in Australia did not need to decline to the very low levels seen in other parts of the world, the fact that other central banks increase their policy rates does not automatically mean that the policy rate here needs to increase.
"In Australia as is the case elsewhere, policy rates are set at the level assessed to be appropriate to achieve the domestic policy objectives," he added.
He admitted that global influences could not be ignored, but the immediate goals of the RBA were to price stability and employment when setting appropriate policy levels.
He concluded: "While global influences, including monetary policy settings in other economies, have a significant impact on that assessment, they are, in the end, only one of a number of considerations to be taken into account."
Data published earlier this week showed full-time employment growth remained strong in June with 14,000 jobs added and an unemployment rate of 5.6.
Slack remains in the Australian labour market, however, and the country has suffered – like many others – from low wage growth, putting pressure on household spending.
"There is still plenty of excess capacity in the labour market, which we think will keep a lid on wage growth. As such, we expect that rates will remain on hold until 2019," said Kate Hickie at Capital Economics.
Nevertheless, a run of robust economic data has supported the country's currency, while gains in commodity prices in the past four weeks have also provided backing for the Aussie.
Indeed, on Thursday, the Australian dollar hit a two-year intraday high of A$0.7989.
Interest rates and market reaction
Australia's interest rates never did fall as low as those elsewhere in the developed world following the financial crisis as a blossoming commodity market, buoyed by Chinese growth, turned into a full-blown boom.
The country's main interest rate is currently at a record low of 1.5%. Contrasted with Europe's 0%, Japan's negative rate and even the US's 1-1.25% rate, it presents an attractive yield for international investors.
Following Debelle's comments in Adelaide, the Australian dollar fell as much as 1.1% against its US counterpart. By the time markets opened in Europe, the Aussie was down 0.7% at A$0.7903.