Australian Dollar Trend Analysis: After a Decade of Depreciation, Can the Rebound Trend Hold?

The Australian dollar is the fifth most traded major currency in the global foreign exchange market, alongside the US dollar, euro, Japanese yen, and British pound, serving as a core trading instrument in international markets. The high liquidity and low spreads of the AUD/USD exchange rate make it an ideal choice for medium and large investors to conduct short-term trading and medium- to long-term positioning. However, when extending the time horizon to over ten years, a prominent phenomenon emerges: although the AUD has historically been regarded as a high-yield currency, its overall performance over the past decade has been quite weak, with only occasional sharp rebounds. The current question is whether these rebounds can develop into a genuine upward trend.

Why Has the AUD Been Depreciating for Ten Years? The Dual Impact of Commodity Cycles and a Strong US Dollar

Starting from early 2013 at around 1.05, the AUD/USD has depreciated by over 30% over the past decade, while the US dollar index has risen by more than 28%. This is not unique to the AUD; during the same period, the euro, yen, and Canadian dollar also weakened against the dollar. Behind this global strong dollar cycle lies the relative advantage of the US in the international economy and systematic suppression of other currencies.

The core dilemma of the AUD’s trend lies in the confluence of multiple factors. Fundamentally, Australia’s economy is heavily reliant on commodity exports, especially iron ore, coal, and energy. When global demand for commodities weakens and China’s economic growth slows, the AUD—being a typical “commodity currency”—suffers the most. Meanwhile, the interest rate differential between Australia and the US no longer provides an attractive carry trade. Once considered a high-yield currency, the AUD’s relative yield advantage has diminished as global interest rate patterns shift, directly reducing demand from arbitrage traders.

Market observations show that whenever the AUD rebounds near historical highs, selling pressure quickly intensifies. This phenomenon reflects deep investor skepticism about the sustainability of AUD appreciation. US tariffs, falling raw material exports, and sluggish domestic economic growth in Australia all limit the AUD’s upward potential. From a medium- to long-term perspective, the AUD appears more like a “rebound but lacking a trend” currency—it may rise temporarily in certain periods, but such gains often lack fundamental support and are vulnerable to external shocks that cause it to fall back.

Three Main Drivers of AUD Movements: Interest Rates, Commodity Cycles, and the US Dollar

To forecast the future direction of the AUD, focus must be placed on three core variables that jointly determine its medium- to long-term rise and fall.

1. RBA Monetary Policy: Rebuilding the Interest Rate Differential Advantage

The AUD has long been viewed as a high-yield currency, with its attractiveness directly linked to the interest rate differential between Australia and the US. Currently, the Reserve Bank of Australia (RBA)’s cash rate is about 3.60%, with market expectations that the rate hike cycle could restart as early as 2026. The Commonwealth Bank of Australia (CBA) forecasts a peak rate of around 3.85%.

If inflation remains sticky and the labor market stays resilient, a hawkish stance from the RBA could help restore the interest rate advantage, boosting the AUD’s appeal to international capital. Conversely, if rate hike expectations fade or policy shifts toward easing, the AUD’s support will weaken, increasing depreciation pressure.

2. China’s Economy and Commodity Prices: External Growth Engines

Australia’s export structure is highly concentrated in iron ore, coal, and energy sectors, making the AUD essentially a commodity currency. China, as the world’s largest consumer of commodities, has a direct impact on the AUD’s movement.

When China’s infrastructure and manufacturing activity pick up, boosting commodity demand, prices of raw materials like iron ore tend to rise, and the AUD often reflects this increase rapidly. The 2020 pandemic period is a typical example: Australia’s relatively stable pandemic response and strong Asian demand drove the AUD to appreciate about 38% within a year.

However, if China’s recovery falters, even short-term rebounds in commodities may not lead to sustained AUD appreciation, resulting in a “spike and retreat” pattern.

3. US Dollar Trends and Global Risk Sentiment: Capital Flow Drivers

From a capital flow perspective, the Federal Reserve’s policy cycle remains a key driver of global FX markets. In a rate-cut environment, the US dollar tends to weaken, benefiting risk-sensitive currencies like the AUD. Conversely, if risk aversion rises and capital flows back into the dollar, the AUD can face downward pressure even if its fundamentals are stable.

Recent market sentiment has improved somewhat, but energy prices and global demand remain uncertain. Investors tend to favor safe-haven assets like the dollar over cyclical currencies like the AUD, which limits its upside potential.

For the AUD to achieve a genuine medium- to long-term bull trend, three conditions must be met simultaneously: the RBA adopts a hawkish stance again, China’s demand substantively improves, and the US dollar enters a structural depreciation phase. If only one or two of these conditions are fulfilled, the AUD is more likely to remain in a range rather than trend upward.

Outlook for the AUD: Can It Break Out of the Depreciation Trap by 2026?

The key to analyzing the AUD’s trajectory is whether “rebounds can turn into trends.” Different market institutions have their own forecasts, reflecting varying perceptions of its prospects.

Morgan Stanley remains relatively optimistic, projecting the AUD/USD could rise to 0.72 by the end of 2026. This outlook is based on expectations that the RBA will maintain a hawkish stance and commodity prices will strengthen.

Traders Union’s models estimate an average exchange rate of about 0.6875 (range 0.6738–0.7012) by the end of 2026, with a further rise to 0.725 by the end of 2027. This forecast emphasizes the importance of a strong Australian labor market and a recovery in commodity demand.

The common basis for these optimistic forecasts is that if the US economy achieves a soft landing and the dollar index declines, it will favor commodity currencies like the AUD.

In contrast, UBS adopts a more cautious view. While recognizing Australia’s economic resilience, they highlight global trade uncertainties and risks from potential Fed policy shifts, expecting the exchange rate to stay around 0.68 by year-end with limited upside.

Recent reports from the Australian Treasury and economists suggest that the AUD’s recovery may be short-lived. They forecast the AUD/USD to peak around March 2026 but possibly decline again by year-end.

Since entering 2026, the AUD’s trend has entered a phase of practical validation. Currently, it is likely to fluctuate within the 0.68–0.70 range, influenced by Chinese economic data and US non-farm payroll figures. Given Australia’s relatively stable fundamentals and the RBA’s hawkish stance, a sharp depreciation seems unlikely. However, structural US dollar strength still caps its rise. In the short term, Chinese data will be a key downside risk, while a recovery in resource exports and commodity cycles will provide upside support in the longer term.

How to Capture Investment Opportunities in AUD Volatility

The AUD/USD is among the top five most actively traded forex pairs worldwide, with high liquidity and low transaction costs, making it relatively straightforward to analyze its movements. Although predicting exchange rates is inherently challenging, the unique structure of the Australian economy allows investors to grasp key opportunities through systematic analysis.

Investors can participate in AUD fluctuations via forex margin trading. This method offers several advantages: support for both long and short positions, enabling profit in bullish or bearish markets; leverage options from 1 to 200 times, lowering entry barriers; and relatively low trading costs, suitable for small and medium investors.

It’s important to remember that all investments carry risks, and forex trading is a high-risk activity with the potential to lose all invested capital. Investors should fully understand these risks and develop trading plans aligned with their risk tolerance.

Summary of AUD Outlook

The “commodity currency” attribute of the AUD remains prominent, with prices of copper, iron ore, coal, and other raw materials closely linked. Based on market analysis and institutional forecasts, the AUD is expected to be supported in the short term by the RBA’s policy stance and strong commodity prices. However, in the medium to long term, global economic uncertainties and potential US dollar rebounds will pose risks.

Forex markets are highly volatile, and accurate short-term predictions are difficult. Nonetheless, the AUD’s liquidity, predictable volatility patterns, and economic structure make medium- and long-term trend assessments more feasible. For investors interested in AUD analysis and trading, understanding the interplay of the three main drivers outlined above is more important than simply chasing short-term fluctuations.