Learn the fundamentals

Money has a price because people prefer cash now over cash later, and lenders want compensation for the wait and the risk that they may not be repaid. Australia's central bank, the Reserve Bank (RBA), sets the "cash rate" — the base price banks charge each other for overnight loans. Move it, and other prices of money follow: mortgages, savings, business loans. Cheaper money encourages borrowing and spending, which lifts prices and asset values. Dearer money does the reverse.

That $4 is locked in for the life of the bond. Here's the seesaw. Imagine you own a bond paying $4 a year. Suddenly, new bonds pay $5. Nobody wants your stingy $4 one, so to sell it you must drop the price. As your bond's price falls, that $4 becomes a bigger slice of what a buyer pays — so the yield (your return) rises. Price down, yield up. Always.

Australia's 10-year government bond yield is a key gauge of longer-term borrowing costs, which feed into things like fixed home loan rates. (Variable mortgage rates, by contrast, track the Reserve Bank's cash rate.) Globally, the US 10-year Treasury is the main reference rate — the "safe" return much else is measured against.

Usually the curve slopes up: locking your money away longer earns more, as reward for the wait and added uncertainty. An inverted curve slopes down, where short loans pay more than long ones. That is unusual, and it often means investors expect the economy to weaken and central-bank rates to fall ahead, so they buy long-term bonds now to lock in today's higher yields.

To measure it, the Australian Bureau of Statistics tracks a "basket" of things households buy — groceries, rent, petrol, haircuts — and checks how its total price changes. That's the Consumer Price Index (CPI). Some prices swing wildly (petrol, fruit), so a "trimmed mean" sets aside the most extreme movers, both up and down, to show the steadier underlying trend. When inflation runs hot, the Reserve Bank lifts its main interest rate, the "cash rate": borrowing costs more, people spend less, demand cools, and price rises ease.

Their job: keep prices stable (low, steady inflation — the rate at which prices rise) and people employed. Their main lever is the policy rate (the interest rate they set, called the cash rate in Australia), which ripples into other borrowing costs. Think of it like a thermostat for spending. Too hot, prices climbing fast? Raise the rate, borrowing costs more, people spend less, prices cool. Too cold, jobs scarce? Lower it, borrowing cheapens, spending warms up.

These are "commodities" — raw materials sold in bulk by the tonne. Think of Australia as a giant farm stall. When buyers like China want its produce, they often must swap their own money for Australian dollars to pay local miners. More buyers wanting AUD pushes its price up, much like a crowded stall lets a seller charge more. Because commodities are priced in US dollars worldwide, rising prices usually mean more income flowing to Australia, lifting demand for the AUD. When demand fades, the AUD falls with it.

China makes roughly half the world's steel for apartment towers, bridges and cars, and Australia is the largest, lowest-cost supplier feeding it, which is why iron ore is our number-one export. Think of China as a giant bakery and iron ore as flour: when the bakery is busy it buys more flour and pays more for it. So when China builds heavily, miners like BHP, Rio Tinto and Fortescue earn bigger profits, the higher export income lifts the Australian dollar (AUD), and Canberra collects more company tax, helping the federal budget.

Markets do this with money. When confident (risk-on), investors buy shares and riskier currencies like the Australian dollar (AUD), and lean away from "safe-haven" assets. When scared (risk-off), they often sell shares and the AUD and crowd into havens: high-quality government bonds (IOUs from governments) and gold. Roughly, the same mood moves many assets together.

It is calculated from the prices of "options" (contracts that act like insurance, paying out if markets move sharply). When traders feel calm, they pay little for that protection, so the VIX sits low. When they get scared, they rush to buy protection, option prices jump, and the VIX spikes; that is its "fear gauge" nickname. Think of home-insurance premiums in storm season: prices climb when people sense danger. Such fear often pushes money away from riskier assets like the Australian dollar and mining shares.

But future money is worth less than money today, so we shrink those future amounts down to today's value: this is "discounting". Interest rates set how hard we shrink. The P/E (price-to-earnings) multiple is simply the price you pay per dollar of yearly profit, so a $30 share earning $1 a year has a P/E of 30. When the RBA (Reserve Bank of Australia) lifts interest rates, future earnings get shrunk harder, so prices fall. Tech firms, whose profits sit further in the future, typically feel this most.

Japan's has sat near zero for decades; Australia's is higher. So traders borrow cheap yen, swap it into Aussie dollars, and park it where it earns more. That gap is their profit — like using a 0% credit card to leave money in a 4% savings account. Easy money, until the gap shrinks or the exchange rate turns. Because the trade only works when investors feel calm, AUD/JPY (how many yen one Aussie dollar buys) rises in good times and falls in fear, acting as a global mood gauge.

The DXY, or US Dollar Index, is a scoreboard tracking the dollar's value against a basket of other major currencies like the euro and yen. Here's the everyday analogy: a giant global vending machine takes only US dollars, so when dollars get pricier, buyers using other currencies must pay more for the same iron ore or oil, and that softer demand nudges prices down.

Supply is partly steered by OPEC, a club of big oil-producing nations that can agree to pump less and lift prices—like a handful of farmers at a market quietly deciding to bring fewer apples so each one sells dearer. Geopolitics (wars, sanctions) can choke supply too. Two benchmark prices exist: Brent (the global/European marker) and WTI (the US marker), differing mainly by location and oil grade (WTI is lighter).

That scarcity is its appeal. When people fear a crisis or worry that inflation (rising prices) is eating their cash, they shift money into gold—a "safe haven" that holds its worth. But gold pays no interest, so it competes with bonds (loans to governments that pay a yield). When real yields (interest after inflation) rise, bonds look tempting and gold loses shine. So a rising gold price often signals fear or falling real yields.

Think of gold as an umbrella: useless on sunny days, prized when storms hit.

Bitcoin has increasingly behaved like that factory. As big institutions hold it alongside shares, it rises and falls with the same "risk-on, risk-off" mood — investors piling into or fleeing risky assets — that moves stocks, only more violently (high-beta: it swings bigger than the market). Because crypto trades 24/7, even weekends, it can react to news before share markets open — a "canary." Spot-Bitcoin ETFs (sharemarket-listed funds holding actual Bitcoin) channel everyday money in and out, which can amplify moves.

When rates rise, borrowing capacity shrinks and prices cool. Picture a seesaw: rates on one side, prices on the other. Prices react slowly, though. Fixed-rate loans, slow-to-sell homes and habit mean changes to the Reserve Bank's cash rate often take a year or more to fully show in prices.

The main benchmark for what they pay is the RBA's cash rate (the base rate the RBA sets), but on top sits a "funding spread": the extra they pay savers for deposits and investors who lend to banks in financial markets. Your mortgage rate is built on all that. So when nervous markets make borrowing dearer for banks, that cost can flow through to you—rates can rise even with the RBA on hold. Like a café: when the wholesale coffee-bean price jumps, your flat white gets dearer even though the café's rent hasn't moved.

To receive the next payment you must own the share before a cutoff called the ex-dividend date; buy on or after that date and the seller keeps the payment. On that date the price typically falls by roughly the dividend, since new buyers no longer get it. Australia adds franking credits: if the company already paid company tax (usually 30%) on that profit, it attaches a credit so the profit isn't taxed twice over.

Because the money sits there, the fund managing it puts it to work, mostly buying shares (small ownership stakes in companies). Multiply that drip across roughly 14.7 million working Australians, year after year, and the bucket now holds about A$4 trillion. Money keeps flowing in every payday. So even if you never buy a single share yourself, your retirement savings already own a piece of the market.

When almost everyone has a job, employers compete for staff, so wages rise. People with fatter pay packets spend more, which can push prices up — part of inflation (the general rise in prices over time). To cool an overheating economy, central banks like Australia's Reserve Bank (the RBA) lift interest rates (the cost of borrowing). Higher rates ripple into mortgages, business costs and share prices — so markets react fast to each jobs number.

Picture the economy as a bathtub: spending pours in, and the water level is GDP. When confidence is high, the tap runs fast (a boom); when people pull back, it drains. As a rule of thumb, two quarters (six months) of falling GDP is called a recession. Surveys called PMIs (Purchasing Managers' Indexes) ask businesses if orders are rising, giving an early peek before official figures. Counterintuitively, strong growth can spook markets: it may push the RBA (Reserve Bank of Australia) to raise rates.