Once an iPhone is configured with the appropriate U.S. credentials, international owners can use Apple Pay at point-of-sale terminals that support NFC payments. Australians, for example, can use Apple Pay at locations that accept MasterCard PayPass, Visa payWave, or American Express ExpressPay payments.
As Giles points out, the situation is not ideal for natives of countries outside of the U.S., as using a U.S. credit card for these purchases will incur currency conversion fees that can increase costs significantly. But for U.S. users traveling abroad or for international users who have U.S. credit cards and simply want to try out the service, Apple Pay does indeed function internationally.
Though Apple Pay is officially supported in the U.S. for the time being, the mobile payment solution is designed to work with existing payment terminals around the world. Once banks begin to work with Apple and offer support for Apple Pay, the expansion of the program into international countries should be relatively easy.