Why has the Australian dollar continued to depreciate over the past ten years? Is there a chance for a turnaround in the future?

The Australian dollar, as the fifth-largest reserve currency by global trading volume (after the US dollar, euro, yen, and British pound), has always attracted significant attention for its exchange rate fluctuations. Especially the AUD/USD currency pair, which not only offers ample liquidity and narrower spreads but is also a popular choice for short-term trading and medium-term positioning.

For a long time, the AUD has been regarded as a typical high-yield currency, often targeted by carry trades and hot money inflows. However, when looking at a longer time horizon, the overall performance of the AUD over the past decade has been quite weak—except for certain rebound periods, it has mostly been in decline or consolidation.

The Decade-Long Depreciation of the AUD: The Crushing of the Strong Dollar Cycle

Starting from early 2013 at around 1.05, over the past ten years, the AUD/USD has depreciated by over 35%. During the same period, the US dollar index (DXY) rose by 28.35%, which clearly indicates that the weakening of the AUD is not an isolated phenomenon but a result of the global financial system entering a “strong dollar cycle.”

Other major currencies such as the euro, yen, and Canadian dollar have also experienced depreciation against the dollar. This reflects a core issue: the predicament of the AUD fundamentally stems from an increased global preference for the US dollar. Both technical trends and fundamentals suggest that the AUD remains relatively disadvantaged, which also explains why, even during rebounds, the AUD struggles to stabilize at high levels.

Analysis of AUD Trends: Dual Challenges of Commodity Cycles and Interest Rate Differentials

To understand why the AUD has been unable to turn around, it is necessary to review its historical performance and background changes:

2009-2011: Commodity Boom Period
China’s robust economic recovery drove global commodity demand, and the interest rate differential favoring Australia over the US attracted capital inflows, pushing the AUD/USD close to 1.05.

2020-2022: Pandemic Rebound and Commodity Bull Market
Australia’s relatively stable pandemic control, strong demand from Asian markets for iron ore and other raw materials, and the policy stance of the Reserve Bank of Australia (RBA) collectively boosted the AUD/USD by approximately 38% within a year. At this time, the AUD benefited from its commodity currency nature.

2023-2024: Weak Recovery in China
As China’s economic growth momentum slowed, commodity prices fluctuated at high levels, and the interest rate advantage gradually diminished. The AUD’s trend shifted to a long-term weakening.

2025-2026 Outlook: The Tug of War Between Rate Cuts and Commodity Rebound
Rate cuts and rising commodity prices could potentially widen interest differentials again, but whether this is enough to reverse the AUD’s fate remains to be seen.

From the second half of 2025, iron ore and gold prices surged significantly, coupled with the Fed’s rate cuts driving capital into risk assets, causing the AUD to fluctuate higher. The AUD briefly rose to 0.6636, appreciating by about 5-7% in 2025. However, on a longer-term scale, the trend of the AUD remains relatively weak.

Fundamental Reasons for the Limited Rebound of the AUD

Whenever the AUD approaches previous highs, market selling pressure tends to increase significantly, reflecting limited confidence in the currency. Analysts point out the main reasons include:

US Tariff Policies Impact Trade
Deterioration in global trade conditions has led to declines in raw material exports (metals, energy), directly undermining the AUD’s status as a commodity currency.

Interest Differential Advantage Difficult to Reverse
The interest rate spread between the US and Australia is unlikely to improve in the short term. Australia’s domestic economic growth remains sluggish, making its assets less attractive.

Lack of Clear Growth Drivers
Currently, the AUD resembles a currency with “rebound potential but no clear trend.” Without strong growth momentum or interest rate advantages, the AUD’s movements are more susceptible to external factors rather than fundamentals. This is a core reason why the market remains cautious about the AUD.

Three Key Factors in AUD Trend Analysis

From a medium- to long-term perspective, investors should focus on the following three decisive variables to judge the bullish or bearish turning points of the AUD:

1. RBA Monetary Policy and Interest Rate Differentials
The AUD has long been viewed as a high-yield currency, with its attractiveness heavily dependent on interest rate spreads. Currently, the RBA’s cash rate is about 3.60%, and the market is gradually shifting expectations toward a possible rate hike again in 2026. The Commonwealth Bank of Australia forecasts a peak rate of around 3.85%.

If inflation remains sticky and the labor market stays resilient, a hawkish stance from the RBA will help restore interest rate differentials and support the AUD; conversely, if rate hike expectations falter, the AUD’s support will weaken significantly.

2. China’s Economy and Commodity Prices
Australia’s export structure is highly concentrated in iron ore, coal, and energy, making the AUD essentially a typical commodity currency, with China’s demand being the most critical variable. When China’s infrastructure and manufacturing activity rebound, iron ore prices tend to strengthen in tandem, and the AUD usually reflects this quickly in the exchange rate; if China’s recovery falters, even short-term commodity rebounds may lead to a “spike and fall” pattern in the AUD.

3. US Dollar Trends and Global Risk Sentiment
From a capital flow perspective, the Federal Reserve’s policy cycle remains the core driver of the global FX market. In a rate-cut environment, a weaker dollar generally benefits risk currencies, including the AUD; however, if risk aversion rises and capital flows back into the dollar, the AUD can be pressured even if fundamentals are stable. Recent energy prices and global demand remain cautious, with investors favoring safe-haven assets over cyclical currencies like the AUD, limiting its upside potential.

Diverging Forecasts from Major Institutions

The key to the AUD’s future trajectory lies in whether the recent rebound can turn into a sustained trend. Most market analysts agree that the AUD has room for short-term correction, but a strong bullish trend requires clearer macro conditions.

Morgan Stanley’s Optimistic Outlook
Projects the AUD/USD could rise to 0.72 by the end of 2025. This view is mainly based on the expectation that the RBA will maintain a hawkish stance and that commodity prices will strengthen.

Traders Union’s Mid-term Outlook
Average around 0.6875 by the end of 2026 (range 0.6738-0.7012), rising further to 0.725 by the end of 2027, supported by a strong Australian labor market and a recovery in commodity demand.

UBS’s Cautious View
While acknowledging Australia’s economic resilience, UBS suggests that global trade uncertainties and potential shifts in Fed policy could limit the AUD’s gains, with forecasts around 0.68 at year-end.

Cautious Stance from Australian Federal Bank Economists
Recent reports suggest that the AUD’s recovery might be temporary. They forecast the AUD/USD reaching a peak in March 2026 but possibly declining again by the end of 2026.

Wall Street Risk Warnings
If the US avoids recession but the dollar remains super-strong (due to interest rate differentials), the AUD will struggle to break through resistance at 0.67.

Reasonable Expectations for AUD Trends

Combining various viewpoints, the AUD is likely to oscillate between 0.68 and 0.70 in the first half of 2026, influenced by Chinese data and US non-farm payroll figures. In the short term, the AUD is unlikely to collapse sharply because of solid fundamentals and a relatively hawkish RBA; however, it also won’t surge above 1.0, as structural US dollar advantages persist.

Short-term pressures mainly stem from China’s economic data, while long-term positives include Australia’s resource exports and potential commodity cycle recovery. For the AUD to break into a genuine medium- to long-term bull trend, three conditions must be met simultaneously: the RBA returning to a hawkish stance, a substantial improvement in Chinese demand, and a structural weakening of the US dollar. If only one of these is present, the AUD is more likely to remain in a range rather than trend upward unilaterally.

Investment Insights from AUD Trend Analysis

As a commodity-exporting currency, the AUD’s “commodity currency” attribute remains prominent, especially with high correlation to prices of copper, iron ore, coal, and other raw materials. Based on market analysis, in the short term, the RBA’s hawkish stance and strong raw material prices will provide support.

However, in the medium to long term, investors should be cautious of global economic uncertainties and potential rebounds in the dollar, which could limit the upside and lead to more volatile movements. Although FX markets are inherently volatile and difficult to predict precisely, the AUD’s high liquidity, strong volatility patterns, and economic structure make medium- to long-term trend judgments relatively accessible.

In analyzing the AUD, key factors include monitoring RBA policy signals, Chinese economic data, and US dollar movements to assess whether the AUD has the conditions for sustained appreciation.