Will the Australian dollar rise again? 2026 Trend Analysis and Investment Outlook

Will the Australian dollar rebound? This question troubles many investors. Over the past decade, the AUD/USD has depreciated by more than 35%. Although there was a 5-7% rebound in 2025, in the longer term, these fluctuations seem more like a brief respite within a historically weak trend. To determine whether the AUD can truly break out of its lows, we must first understand why it has been under persistent pressure and what conditions are needed for a sustained rally in the future.

As the fifth most traded currency globally, the AUD is highly liquid with low spreads and has traditionally been viewed as a high-yield currency, often targeted by international hot money for carry trades. However, this traditional advantage is gradually diminishing.

Ten-Year Depreciation Trend: Why Is the AUD Struggling to Shake Off Weakness?

From early 2013 at 1.05 to now, the AUD/USD has fallen over 35%, while the US dollar index has risen 28.35%. This is not unique to the AUD—EUR, JPY, and CAD have also depreciated against the dollar, reflecting a global strong dollar cycle.

The persistent weakness of the AUD stems from three structural obstacles:

First, weakening commodity demand. Australia’s exports heavily depend on iron ore, coal, and energy, with China being a major market. When China’s economic recovery stalls and infrastructure investment slows, commodity prices come under pressure, reducing the purchasing power of the “commodity currency.” Although iron ore and gold prices surged in late 2025, pushing the AUD briefly to 0.6636, such rebounds often lack lasting momentum.

Second, the diminishing interest rate advantage. The Reserve Bank of Australia (RBA) currently has a relatively hawkish stance, with CBA forecasting a peak rate around 3.85%. If inflation remains sticky and employment stays resilient, the RBA may hold or even raise rates further into 2026, restoring the interest rate differential advantage over the US. However, if rate hikes fall short, the AUD’s support will weaken significantly.

Third, rising global economic uncertainties. US tariffs, geopolitical risks, and risk aversion in financial markets lead investors to favor safe assets over cyclical currencies like the AUD. Whenever the AUD approaches previous highs, selling pressure increases, reflecting limited market confidence in its long-term prospects.

In short, the AUD now resembles a “rebounding but trendless” currency—subject to short-term fluctuations driven by commodity prices or the dollar, but lacking the fundamental momentum for a long-term appreciation.

Three Key Factors for the AUD Outlook: Interest Rate Differentials, Commodities, and the US Dollar

Will the AUD rise again? The answer depends on whether three core variables improve simultaneously.

Factor 1: RBA monetary policy and interest rate structure.
The RBA currently adopts a relatively hawkish stance. CBA predicts a peak rate around 3.85%. If inflation remains persistent and employment stays strong, the RBA might maintain or even raise rates into 2026, re-establishing a favorable interest rate differential against the US dollar. Conversely, if rate hikes fall short, the AUD’s support will weaken.

Factor 2: China’s economy and commodity price cycles.
Australia’s export structure is highly concentrated, making the AUD essentially a commodity currency. When China’s infrastructure and manufacturing activity pick up, iron ore prices tend to rise, and the AUD usually reflects this quickly. However, if China’s recovery falters, even short-term commodity rebounds may lead to “spikes followed by declines,” a pattern seen over the past two years.

Factor 3: US dollar trends and global risk sentiment.
The Fed’s policy cycle remains a key guide. In a rate-cut environment, a weaker dollar generally benefits risk currencies like the AUD. But if risk aversion increases and funds flow back into the dollar, the AUD can weaken even if its fundamentals are stable. As of early 2026, global demand remains subdued, and investors tend to seek stable assets, exerting downward pressure on the AUD.

For the AUD to achieve a genuine medium- to long-term bull run, all three conditions must be met simultaneously. If only one or two are in place, the currency is more likely to oscillate within a range rather than trend upward.

Will the AUD Rebound in 2026? Institutional Forecasts and Risks

Major banks’ outlooks for the AUD differ significantly, reflecting the market’s real challenges.

Optimistic consensus:
Morgan Stanley expects the AUD/USD to rise to around 0.72, assuming the RBA remains hawkish and commodity prices strengthen. Traders Union’s models project an average of about 0.6875 by late 2026 (range 0.6738–0.7012), rising further to 0.725 by late 2027, based on scenarios of a soft landing for the US economy and a decline in the dollar index.

Cautious warnings:
UBS notes that despite Australia’s economic resilience, global trade uncertainties and potential Fed policy shifts could limit gains, with forecasts around 0.68 by year-end. CBA economists are more conservative, suggesting the AUD’s recovery may be short-lived, expecting a peak around March 2026, followed by a possible retreat by year-end. Some Wall Street analysts warn that if the US avoids recession but the dollar remains strong due to interest rate differentials, the AUD may struggle to break above 0.67.

Practical outlook:
Entering Q1 2026, the AUD is likely to fluctuate between 0.68 and 0.70, with short- to medium-term movements heavily influenced by Chinese data and US non-farm payrolls. From a risk perspective, a sharp collapse is unlikely—Australia’s fundamentals remain solid, and the relatively hawkish RBA provides a floor. However, it will also face resistance at previous highs, as structural US dollar strength persists. Short-term pressures mainly stem from Chinese economic data, while long-term positives include resource exports and commodity cycles.

Investment Opportunities in the AUD: Forex Trading Practical Guide

The AUD/USD is among the top five most traded currency pairs globally, with high liquidity and predictable volatility, making technical analysis more accessible. While currency forecasts are inherently uncertain, Australia’s economic structure and commodity linkage offer a relatively clear medium- to long-term framework.

Forex margin trading offers flexibility:
Investors can go long or short, leverage 1-200x, and seek profits in both rising and volatile markets. The low entry barrier makes it suitable for small and medium investors.

Risks should not be underestimated:
All investments carry risks, especially high-leverage forex trading, which can result in total loss of capital. Participants should fully understand market mechanics, establish clear risk management strategies, and choose leverage levels according to their risk tolerance.

Final Assessment of the AUD Outlook

Will the AUD rebound? Based on various indicators, there is short-term rebound potential, but sustained long-term appreciation requires meeting strict multiple conditions.

As a commodity currency, the AUD’s long-term trajectory is closely tied to iron ore, copper, coal, and other raw materials. In the short term, hawkish RBA policies and strong commodity prices will provide support; in the medium to long term, global economic uncertainties and potential dollar rebounds could limit gains. Overall, 2026 is more likely to see a “range-bound slow rise” rather than a sharp breakout. Investors should treat the AUD as a medium-term asset, closely monitoring China’s economic data, US interest rate policies, and commodity prices—these will be key indicators guiding its direction.