What effects do rising interest rates have on the value of the Australian dollar?

All other things being equal, an increase in interest
rates in Australia relative to other countries should cause the Australian dollar to
rise in value relative to those other countries' currencies.  Please note that this only
applies to real interest rates: the interest rates relative
to expected rates of inflation.

If real interest rates rise
in Australia, more foreign investment money will be attracted to Australia.  Foreigners
will want to lend money in Australia because they can get a higher rate of return on
their loans.  When this happens, the demand for Australian dollars will rise (because
foreigners have to buy Australian dollars in order to loan them out).  An increase in
demand for Australian dollars will (all other things being equal) cause an increase in
the value of the Australian dollar.