Why does the Australian dollar continue to face pressure? 2023 to 2026 trend forecast and investment analysis

The Australian dollar (AUD) is the fifth-largest traded currency globally, and the AUD/USD currency pair ranks among the top five in global trading volume. Its strong liquidity and low spread characteristics make it a popular choice for short-term trading and medium- to long-term positioning.

However, the AUD has generally performed relatively weakly over the past decade. Starting from a level of 1.05 in early 2013, the AUD/USD has depreciated by over 35% as of 2023, while the US dollar index has risen by 28.35%, forming a complete strong dollar cycle. Even if the AUD rebounds around 2025 with an increase of about 5-7%, reaching as high as 0.6636 at one point, the long-term outlook remains that the weak trend since 2023 has not fundamentally changed.

The Three Major Causes of AUD Underperformance: Commodities, Interest Rate Differentials, and the US Dollar Triangle Dilemma

The AUD has long been viewed as a high-yield and commodity currency, but these two supports have weakened simultaneously in recent years.

First, weakening commodity demand. Australia’s export structure is highly concentrated in iron ore, coal, and energy. Although prices for iron ore and gold rose in the second half of 2025, they could not alter the medium-term trend—China’s manufacturing recovery has lacked momentum, global trade prospects remain uncertain, and declining raw material exports have directly impacted the AUD’s commodity currency status.

Second, diminishing interest rate advantage. The Reserve Bank of Australia (RBA) currently has a cash rate of about 3.60%, with market expectations of possibly raising it again to 3.85% in 2026. However, the US Federal Reserve’s policy continues to dominate the global interest rate structure. If the US maintains a high interest rate environment, the interest rate differential between Australia and the US will be difficult to reverse, significantly reducing the attractiveness of the AUD as a high-yield currency.

Third, reliance on the US dollar’s structural strength. Since 2023, the US dollar index has remained relatively resilient. During times of heightened risk aversion, capital tends to flow back into the US dollar rather than into cyclical currencies like the AUD, limiting its upside potential.

Overall, whenever the AUD approaches previous highs, market selling pressure increases, reflecting investors’ limited confidence in the currency.

Three Key Factors for Interpreting the Medium- to Long-Term Trend of the AUD

The future movement of the AUD from 2023 to 2026 mainly depends on three mutually constraining variables:

1. RBA monetary policy and interest rate differential rebuilding.
If inflation remains sticky and the employment market stays resilient, the RBA’s hawkish stance will help the AUD rebuild its interest rate advantage. Conversely, if rate hike expectations fall short, the AUD’s support will weaken significantly. This is an important short-term indicator.

2. China’s economic and commodity cycle recovery.
The AUD is essentially a commodity currency. When China’s infrastructure and manufacturing activities pick up, and iron ore prices strengthen, the AUD usually reacts quickly in the exchange rate. If China’s recovery lacks momentum, even a short-term rebound in commodities may lead to a quick rise and fall pattern in the AUD.

3. US dollar cycle and global risk sentiment.
The Fed’s policy cycle remains central to the global FX market. A rate-cut environment typically weakens the dollar, which is usually positive for risk assets like the AUD; however, if risk aversion increases and capital flows back into the dollar, the AUD may face downward pressure even if its fundamentals are stable.

Only when all three conditions are met—RBA returning to a hawkish stance, genuine improvement in Chinese demand, and a structural weakening of the dollar—can the AUD break out into a true medium- to long-term bull trend. If only one condition is met, the AUD is more likely to remain range-bound rather than trend upward unilaterally.

Mainstream Institutional Forecasts for the AUD’s Future Trend

Major investment institutions have diverging outlooks for the AUD:

Optimistic — Morgan Stanley expects the AUD/USD to possibly rise to 0.72 by the end of 2025, mainly supported by the RBA’s hawkish stance and rising commodity prices. According to Traders Union’s statistical model, the average by the end of 2026 is around 0.6875 (range 0.6738–0.7012), with further rise to 0.725 by the end of 2027.

Moderate — UBS believes that despite Australia’s economic resilience, global trade uncertainties and Fed policy changes could limit the AUD’s gains, with an expected level around 0.68 by year-end.

Cautious — CBA analysts suggest that the AUD’s recovery may be short-lived, predicting a peak around March 2026, but a possible reversal downward by year-end. Some Wall Street analysts also warn that if the dollar remains extremely strong, the AUD will struggle to break through the 0.67 resistance.

The Practical Outlook and Expectations for the AUD Since 2023

Looking back at the AUD’s performance in 2023, its weak trend has been fully reflected. By 2026, the AUD is likely to fluctuate within the 0.68–0.70 range, influenced by Chinese data and US non-farm payrolls. In the short term, the AUD is unlikely to collapse sharply due to solid Australian fundamentals and a relatively hawkish RBA; however, it is also unlikely to surge to 1.0, as structural US dollar advantages remain.

Short-term pressures mainly stem from Chinese economic data, while long-term positives include the potential recovery of Australia’s resource exports and commodity cycles.

Key Considerations for Investing in the AUD

The AUD/USD benefits from high liquidity and strong volatility patterns, making medium- to long-term trend assessment relatively straightforward. Investors can participate in the AUD’s movements through various channels, including forex trading, futures, or spot transactions.

Regardless of the approach, investors should understand the commodity currency nature of the AUD and stay attentive to RBA policy developments, Chinese economic data, and US dollar cycle changes. Although predicting exchange rates is inherently challenging, understanding the interaction of these three key factors can help investors more confidently identify trend opportunities.

As a major global trading currency, the AUD’s fluctuations reflect both commodity market expectations and broader macroeconomic shifts. For traders skilled at interpreting these signals, the AUD’s future holds structural opportunities.