Analysis of the Australian Dollar's Position and Long-term Trends in the Global Forex Market

The Australian dollar is the fifth most traded major currency globally, ranking alongside the US dollar, euro, Japanese yen, and British pound as a core trading instrument in the foreign exchange market. The AUD/USD exchange rate also ranks among the top five in liquidity worldwide, with its low spread characteristics making it an ideal target for short-term trading and medium- to long-term positioning.

As a typical commodity currency, the value of the AUD is closely linked to the prices of bulk commodities such as iron ore and coal. However, the chart of the AUD over the past decade shows that the appeal of this “high-yield currency” is gradually weakening. In early 2013, the AUD/USD exchange rate was about 1.05; by the end of 2023, it had depreciated by over 35%, while the US dollar index rose by 28% during the same period, reflecting a global shift into a strong dollar cycle. The AUD is not under pressure alone.

Fundamental Reasons for the Weakening of the AUD Over Ten Years

Looking at a longer timeframe, the overall performance of the AUD over the past decade has been relatively lackluster, with only certain periods showing significant rebounds. An exception worth noting is during the 2020 pandemic—thanks to Australia’s relatively stable pandemic control, strong demand for commodities from Asian markets, and coordinated policies by the Reserve Bank of Australia (RBA), the AUD/USD rose nearly 38% within a year.

Since 2021, however, the AUD has mostly been in consolidation or a weakening trend. Entering 2025, despite sharp increases in iron ore and gold prices, and the Federal Reserve entering a rate-cut cycle that drove capital into risk assets, the AUD/USD fluctuated upward to 0.6636, hitting a new high for the year. Yet, compared to its historical highs, the rebound remains limited.

The deep pressures on the AUD exchange rate stem from the following points:

First, US tariff policies impact global trade patterns, putting downward pressure on raw material exports (especially metals and energy), directly weakening the fundamental support for the AUD as a commodity currency. Second, the limited interest rate differential between Australia and the US, coupled with sluggish domestic economic growth and declining international competitiveness of Australian assets, also weigh on the currency. Lastly, in the absence of clear growth drivers, the AUD’s movement relies heavily on external factors rather than domestic economic fundamentals.

Three Key Factors Determining the Medium- to Long-term Trend of the AUD

Investors aiming to accurately grasp the turning points of the AUD should focus on the following three core variables:

First, the RBA’s monetary policy

The AUD has long been regarded as a high-yield currency, with its attractiveness heavily dependent on interest rate differentials. Currently, the RBA’s cash rate is about 3.60%, with market expectations of further rate hikes in 2026. If inflation remains sticky and the employment market stays resilient, the RBA’s hawkish stance will help restore the AUD’s interest rate advantage; conversely, if rate hikes fall short, the AUD will lose support.

Second, China’s economic trends and commodity prices

Australia’s export structure is highly concentrated in iron ore, coal, and energy products, defining its nature as a commodity currency. When China’s infrastructure and manufacturing activities rebound, iron ore prices tend to strengthen simultaneously, and the AUD often reacts quickly; however, if China’s recovery is weak, even short-term rebounds in commodities may lead to a “quick rise and fall” in the AUD, reflecting its fragility.

Third, the US dollar trend and global risk sentiment

From a capital flow perspective, the Fed’s policy cycle remains a key variable in the global FX market. In a rate-cut environment, a weakening dollar generally benefits risk currencies like the AUD; however, when risk aversion rises and capital flows into safe-haven assets like the dollar, the AUD may face downward pressure even if its fundamentals are stable.

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

Institutional Forecasts and Market Consensus on the AUD’s Future

The core question for the AUD’s future is whether the “rebound can turn into a trend.” Most market analysts believe that the AUD has room for short-term recovery, but a return to a strong bullish trend still requires clearer macroeconomic conditions.

Major financial institutions have differing outlooks:

Optimistic view — Morgan Stanley projects the AUD/USD could rise to 0.72 by the end of 2025, mainly based on the possibility that the RBA maintains a hawkish stance and commodity prices stay strong. The Traders Union statistical model estimates an average of about 0.6875 by the end of 2026 (range 0.6738-0.7012), rising further to 0.725 by the end of 2027, emphasizing Australia’s strong labor market and commodity demand recovery potential.

Cautious view — UBS believes that despite Australia’s resilient economy, uncertainties in global trade and potential changes in Fed policy could limit the AUD’s gains, with forecasts around 0.68 by year-end. The Australian Federal Bank economists are more conservative, suggesting the AUD’s recovery may be temporary, expecting a peak around March 2026, with a possible decline again by year’s end.

Practical considerations — If the US avoids a recession but the dollar remains extremely strong (due to interest rate differentials), the AUD will struggle to break through the 0.67 resistance. In the first half of 2026, the AUD is likely to fluctuate within the 0.68-0.70 range, influenced by Chinese data and US employment figures. Australia’s relatively solid fundamentals and hawkish RBA stance imply limited risk of a sharp collapse, but structural dollar strength remains, making a move to 1.0 unlikely. Short-term pressures mainly stem from fluctuations in Chinese economic data, while long-term bullish factors include a potential recovery in Australia’s resource exports and commodity cycles.

Key Indicators to Watch for the AUD Trend

Investors can better understand the AUD’s price behavior by combining price charts with the following indicators:

• RBA policy statements and interest rate decisions
• US Dollar Index (DXY) movements and Fed policy expectations
• Prices of bulk commodities like iron ore and gold
• China’s economic data (GDP, manufacturing PMI, infrastructure investment)
• Australia’s domestic economic data (employment, inflation, consumption)
• VIX fear index and global risk sentiment

Risks and Opportunities in AUD Investment

As one of the top five most active currencies globally, the AUD/USD pair offers ample liquidity and predictable volatility, making it attractive to many investors. Its high liquidity, observable volatility patterns, and Australia’s distinct economic structure make medium- to long-term trend analysis relatively straightforward compared to other currencies.

However, all forex trading involves risks. Investors should fully understand that predicting exchange rate movements precisely is difficult, and most short-term models have limited effectiveness. Forex trading is a high-risk activity; improper operations can lead to total capital loss.

Investors should assess their risk tolerance, trading experience, and capital size carefully before participating in AUD trading. It is recommended to start with demo accounts to understand market mechanisms before trading with real funds.

Conclusion on AUD Investment

As a representative currency of commodity-exporting countries, the AUD’s value is highly correlated with iron ore, coal, copper, and other raw material prices. Its ultimate valuation depends on the interaction between commodity cycles and the global economic cycle.

In the short term, hawkish RBA stance and strong commodity prices will provide upward momentum. However, in the medium to long term, global economic uncertainties and potential dollar rebounds will limit the AUD’s upside, possibly leading to more volatile movements.

Although forex markets are highly volatile and difficult to predict precisely, the AUD’s liquidity and economic characteristics make it relatively easier for investors to identify medium- to long-term trend directions. Understanding the three core variables—RBA policy, Chinese demand, and the US dollar cycle—will help make more informed decisions in AUD trading.