Given the country´s vast natural resources, the Australian dollar has long been labelled as a commodity currency. A sizeable movement in the price of iron ore could have just as much impact on the nation´s currency as a change in monetary policy.
In fact, the two parameters appear to have been highly inter-related in recent years. Subdued commodity prices have meant that the Reserve Bank of Australia (RBA) has needed to worry less about inflation as the boom in the mining sector has cooled.
At its meeting on Tuesday this week, the RBA plumped to leave interest rates on hold yet again, noting that inflation remained subdued despite strength in the domestic jobs market and a buoyant global economy.
Since contracting in the third quarter of 2016 for the first time in five and a half years, accommodative monetary policy has helped the Australian economy to grow.
Australia expanded by 0.8% in the second quarter of this year versus growth of just 0.3% for the first three months of 2017.
The relationship between the Australian dollar and the price of iron ore is often cited.
Australia´s mining of iron ore on a mammoth scale means there has tended to be a very strong, positive correlation between prices of the metal and the country´s exchange rate.
It´s a similar story for Canada, which has long witnessed the fortunes of its dollar being inextricably linked to the price of crude oil.
As the world´s largest exporter of iron ore, higher prices rapidly translate into increased demand for Australian dollars.
Of course, the reverse tends to be the case when prices fall.
In 2011, when iron ore reached an all-time high of $191.9 per tonne, the Australian dollar was trading at 0.98 Australian cents to one US dollar.
Today, with iron ore at around $63 per tonne, Australia´s currency is trading at AUD1.31.
While iron ore prices have dropped by 67% over the period, the Aussie dollar has lost around 34% versus the US dollar.
Meanwhile, Australian interest rates have fallen from 4.75% to 1.5%, having been set at this record low since August 2016.
Since February 2011, the Aussie dollar has also fallen by about 13% against the euro, moving from AUD 1.34 to AUD 1.52.
While the country is also a producer of other commodities such as gold, oil, diamonds, nickel, uranium and coal, iron ore accounted for around 16% of Australian exports last year.
Iron ore has tended to crowd out Australia´s manufacturing sectors; when prices for commodities such as iron ore are particularly high, the corresponding currency strength tends to make other segments of the economy less competitive.
The phenomenon where export industries are hobbled by high currency exchange rates due to evelevated commodity prices is commonly termed as "Dutch disease".