The Australian dollar's dilemma in the global foreign exchange market: from a weak position to a rebound opportunity

As the fifth most traded currency globally (after USD, EUR, JPY, and GBP), the AUD/USD currency pair also ranks among the top five worldwide. This currency pair not only offers high liquidity and competitive spreads but has also become the preferred choice for many investors engaging in short-term trading and medium- to long-term positioning.

However, behind this popularity lies an awkward reality: Over the past decade, the overall performance of the AUD has fallen far short of expectations. As a traditional high-yield currency, the AUD was once favored for carry trades but has gradually lost its appeal in recent years.

Over 30% Depreciation in Ten Years: Why Has the AUD Become a Weak Currency?

From early 2013 at 1.05 to the end of 2023, the AUD/USD has depreciated by over 35% cumulatively. During the same period, the US Dollar Index (DXY) rose against the backdrop by 28.35%, forming a stark contrast. Other major currencies like the euro, yen, and Canadian dollar also experienced depreciation against the dollar, clearly indicating that we are currently in a comprehensive strong dollar cycle.

Both technical and fundamental analyses point to disadvantages for the AUD, making it difficult for even occasional rebounds to stabilize at higher levels.

The evolution of the AUD’s trend can be divided into three distinct phases:

2009–2011: During China’s robust economic recovery, commodity prices surged significantly. The Reserve Bank of Australia (RBA) maintained relatively high interest rates compared to the US, pushing the AUD close to 1.05.

2020–2022: During the pandemic, a global commodities bull market was triggered, with iron ore reaching historic highs. The RBA entered a rapid rate hike cycle, and the AUD briefly broke above 0.80. Notably, during 2020, Australia’s relatively stable pandemic control and strong demand from Asian markets for iron ore and other raw materials jointly drove the AUD up approximately 38% within a year.

2023–2024: China’s recovery momentum weakened, commodity prices fluctuated at high levels, and the interest rate advantage narrowed, leaving the AUD in a prolonged weak state.

Entering 2025, a turning point appeared. Iron ore and gold prices rose, and the US Federal Reserve initiated a rate-cutting cycle, attracting capital into risk assets, causing the AUD to briefly rise to 0.6636. Over the year, the AUD appreciated by about 5–7% against the dollar, but from a longer-term perspective, whether this rebound signals a trend reversal remains to be seen.

Weak Commodity Demand and Diminished Interest Rate Differentials: The Fundamental Reasons Why the AUD Struggles to Rebound

Despite recent rises in commodity prices and a weakening dollar, the AUD remains weak. The fundamental reasons are threefold:

First, US tariff policies intensify global trade tensions. Raw material exports (metals, energy) face demand pressures, weakening the commodity currency support for the AUD. Australia heavily relies on exports of iron ore, coal, and energy; worsening global trade conditions hit the AUD hardest.

Second, the interest rate differential between the US and Australia remains difficult to reverse. The RBA cash rate is around 3.60%, still relatively high globally, but changes in US monetary policy exert ongoing pressure on the interest rate gap. The bilateral interest advantage has diminished compared to the past, reducing the appeal for carry traders.

Third, weak domestic economic growth in Australia diminishes asset attractiveness. Slow economic growth implies insufficient consumption and investment momentum, further limiting the AUD’s upside potential.

Whenever the AUD approaches previous highs, market selling pressure increases significantly, reflecting investors’ limited confidence in its outlook. Overall, the AUD currently exhibits a “rebound but lacking a clear trend” characteristic—able to be temporarily supported by commodity prices and sentiment, yet difficult to establish sustainable fundamentals for a sustained rise.

Three Key Factors to Monitor for AUD Trend Prediction

The AUD’s movement is influenced by multiple interacting factors. To assess whether the AUD has the potential for medium- to long-term appreciation, investors should focus on the following three core factors:

First: RBA interest rate policy—Can the interest rate differential regain its advantage?

The AUD has long been regarded as a high-yield currency, with its attractiveness heavily dependent on the interest rate spread. Currently, the RBA cash rate is about 3.60%, with market expectations of possible rate hikes by 2026. Commonwealth Bank of Australia (CBA) even forecasts a peak rate of around 3.85%.

Key judgment: If inflation remains sticky and the employment market stays resilient, a hawkish stance from the RBA will help rebuild the interest rate advantage for the AUD; conversely, if rate hike expectations diminish, the AUD’s support will weaken significantly. This is a crucial variable for short-term direction.

Second: China’s economy and commodity prices—The external engine for the AUD

Australia’s export structure is highly concentrated in iron ore, coal, and energy, making the AUD essentially a commodity currency, with China’s demand dynamics being the most critical variable.

When China’s infrastructure and manufacturing activity pick up, iron ore prices tend to strengthen, and the AUD often reflects this quickly in exchange rates; but if China’s recovery momentum falters, even short-term commodity rebounds may see the AUD “spike and fall.” In other words, the AUD’s strength or weakness largely depends on China’s economic health.

Third: USD trend and global risk sentiment—Determining capital flows

From a capital perspective, the US Federal Reserve’s policy cycle remains the core driver of the global forex market. In a rate-cut environment, the dollar tends to weaken, benefiting risk currencies like the AUD; but if global risk aversion rises and capital flows back into the dollar, the AUD may face pressure even if fundamentals are stable.

Currently, market sentiment has slightly improved, but energy prices and global demand remain uncertain. Investors tend to favor safe-haven assets over cyclical currencies like the AUD, limiting its upside potential.

Core conclusion: For the AUD to break out into a genuine medium- to long-term bull trend, three conditions must be met simultaneously—RBA returning to a hawkish stance, a substantial improvement in Chinese demand, and a structural weakening of the dollar. If only one or two of these are present, the AUD is more likely to remain in a range-bound oscillation rather than a clear upward trend.

Outlook for 2026 and Beyond: Multiple Scenarios and Analyses of the AUD’s Future

The key to the AUD’s future trajectory lies in whether the “rebound can turn into a trend.” Most market analysts agree that: while the AUD has short-term recovery potential, a strong bullish trend requires clearer macroeconomic conditions.

Major financial institutions have differing views:

Morgan Stanley’s optimistic forecast: expects the AUD/USD to possibly rise to 0.72 by the end of 2025. This outlook is based on the expectation that the RBA will maintain a hawkish stance and commodity prices will stay strong. If the US economy achieves a soft landing and the dollar index declines, it will further support commodity currencies like the AUD.

Traders Union’s statistical model: projects an average target of about 0.6875 by the end of 2026 (trading range 0.6738–0.7012), rising further to 0.725 by the end of 2027. This emphasizes the importance of a strong Australian labor market and a recovery in commodity demand.

UBS’s conservative view: while acknowledging Australia’s economic resilience, global trade uncertainties and potential Fed policy shifts could limit the AUD’s gains, with an expected exchange rate around 0.68 by year-end.

CBA economists’ cautious stance: recent reports suggest that the AUD’s recovery may be temporary. They forecast the AUD/USD reaching a high in March 2026 but possibly retreating again by the end of 2026. Some Wall Street analysts warn that if the US avoids recession but the dollar remains super-strong due to interest rate differentials, the AUD may struggle to break through 0.67 resistance.

Overall assessment: In the first half of 2026, the AUD is likely to oscillate within the 0.68–0.70 range, with significant fluctuations driven by Chinese data and US non-farm payroll figures. The AUD is unlikely to crash in the short term due to solid fundamentals and a relatively hawkish RBA; however, it also probably won’t surge to 1.0 because of persistent structural dollar strength. Short-term pressures mainly stem from Chinese economic data, while medium- to long-term positives include resource exports and commodity cycle recovery.

Participating in AUD Trends via Forex Margin Trading

As one of the top five most traded forex pairs globally, the AUD/USD’s movements are influenced by numerous complex factors. Although currency rates are inherently difficult to predict precisely, and models often struggle to deliver short-term accuracy, the AUD’s high liquidity and strong volatility patterns make medium- to long-term trend analysis more accessible.

Investors can participate in AUD movements through forex margin trading. This trading method offers several advantages:

• Bidirectional trading, profiting from both rising and falling markets
• Leverage of 1–200x to amplify gains
• Low trading thresholds suitable for small and medium investors
• 24-hour market liquidity

Important risk reminder: All investments carry risks. Forex trading is a high-risk activity, and investors may lose all invested capital. Please trade cautiously according to your risk tolerance.

Summary of Investing in the AUD

The AUD’s identity as a “commodity currency” of major resource exporters remains prominent, with strong correlations to prices of copper, iron ore, coal, and other raw materials.

In summary, short-term support for the AUD comes from the RBA’s hawkish stance and strong commodity prices. However, medium- to long-term risks include global economic uncertainties and potential rebounds in the dollar, which could limit upside and increase volatility.

Thanks to its high liquidity and cyclical volatility, along with its distinct economic structure, the AUD’s medium- to long-term trend is relatively easier to grasp. For investors aiming to participate in AUD movements, understanding the interactions among RBA policies, China’s economy, and the US dollar cycle will be key to formulating effective trading strategies.