The Australian dollar has fallen to its lowest level in two-and-a-half years, as America's economy strengthens and its interest rates continue to rise.

The dollar traded as low as 70.44 US cents, before recovering slightly to 70.6 cents (at 5:20pm AEST).

Meanwhile, the price of Australia's key exports, iron ore ($US69) and thermal coal ($US113), have remained "relatively high" despite an escalating US-China trade war.

ANZ senior economist Felicity Emmett believes this is a "good combination" for the local economy in the long-term due to increased demand for Australian exports.

She said with "more money in the coffers", the Government could announce larger personal tax cuts, increased public spending and the federal budget achieving surplus sooner than 2020-21, particularly with the next federal election drawing nearer.

JP Morgan senior economist Ben Jarman expressed similar sentiments.

"There's definitely more scope for bringing forward perhaps the tax cuts that the Government had floated earlier on," he said.

The $144 billion personal tax cuts could be introduced in seven years, then-prime minister Malcolm Turnbull said in June.

"I would love to think that we would be able to bring some of these tax cuts forward if the budget enables it," he said.

Where will consumers feel the pinch?

In the immediate term, Australians travelling overseas (particularly to the United States) may need to tighten their wallets.

"A lower Australian dollar means more people want to come to Australia for holidays since it's cheaper … but fewer Aussies want to travel overseas," Ms Emmett said.

Motorists paying for petrol are also unlikely to be thrilled by the local currency's 32-month low — compounded by Brent crude oil prices climbing to around a four-year high of $US83.38 per barrel.

Shopping may also become more expensive, as retailers paying higher import prices come under increasing pressure to pass on the rising costs to consumers.

"But due to intense competition … from the arrival of so many international retailers in the past few years, it may be harder for retailers to pass on the higher prices to customers," she said.

Why has the Aussie dollar fallen?

With rising US interest rates, the greenback becomes a more attractive investment as traders sell off their holdings in emerging market currencies.

Last week, India's rupee sunk to an all-time low against the US dollar, while Indonesia's rupiah fell to a 20-year low.

The Australian dollar is seen as a proxy for emerging market currencies, and has also been sold off. But its descent has been nowhere near as severe.

It has fallen by 3.3 per cent since September 20, when it traded at 72.9 US cents.

Since late January, the local currency fell by more than 13 per cent, when it peaked at 81.1 US cents on Australia Day (January 26).

The main reason is the interest rate differential between Australia and the US, Ms Emmett said.

Last month, the US Federal Reserve announced its third rate hike this year, with the Federal Funds Rate rising to 2-2.25 per cent, and more rate hikes expected in the next few months.

Meanwhile, Australia's Reserve Bank has kept short-term interest rates on hold at 1.5 per cent for more than two years, as sluggish wage growth and a cooling housing market continues to affect the local economy.

The RBA is widely expected to remain stuck at record low rates for the foreseeable future.

The gap between US and Australian long-term interest rates has also continued to widen — with the benchmark 10-year US treasury yield at 3.23 per cent, and Australia's 10-year government bond yield at 2.76 per cent.

Further falls ahead

However, there is scope for the Australian dollar to continue weakening.

The local currency will hover around 70 US cents, but could fall further if US inflation and interest rates lift by a faster than expected rate, on ANZ's projections.

But JP Morgan has taken a slightly more pessimistic view, with Mr Jarman expecting a fall to 68 US cents.

"The Australian dollar is caught between very supportive factors — high domestic export prices, especially coal and iron ore — but dragged down a little bit from [interest] rate spreads, which are quite negative," he said.

"And it's getting more so with the RBA on hold for an extended period, and the Fed likely to hike several more times."