Australian Dollar Buying Guide: An In-Depth Analysis of a Decade of Depreciation and Rebound Opportunities

The Australian dollar, as the fifth-largest traded currency globally (after the US dollar, euro, yen, and British pound), has its exchange rate movements closely linked to the sentiments of global arbitrage traders. Due to its high liquidity and low spreads, the “AUD/USD” currency pair has become a popular choice for short-term trading and medium-term allocation. Especially known for its “high-yield currency” status over the long term, the AUD often plays a significant role in carry trade stories.

However, looking at the longer time horizon, the overall performance of the AUD over the past decade has been less than satisfactory. Aside from the 38% annual gain in 2020 during the pandemic, driven by Australia’s solid pandemic control, strong demand for raw materials like iron ore in Asia, and supportive policies from the Reserve Bank of Australia (RBA), most periods saw the AUD consolidating or weakening. It wasn’t until the second half of 2025, with a rebound in commodities and the start of the Fed’s rate-cut cycle, that the AUD/USD briefly rose to 0.6636, appreciating about 5–7% for the year, but this still couldn’t change its long-term weak underlying trend.

Why is the AUD difficult to turn around? Commodity rebound alone can’t save it

The decline of the AUD over the past ten years can be clearly illustrated with a set of data. Starting from around 1.05 in early 2013, the AUD depreciated over 35% in ten years, while the US dollar index rose by 28.35% in the same period. The euro, yen, and Canadian dollar faced similar fates, reflecting a massive “strong dollar cycle” — not an issue unique to the AUD.

Despite recent rebounds in commodity prices and the dollar facing some weakening pressures, the AUD still struggles to escape its weak position. The deeper reasons include: US tariffs impacting global trade, which puts pressure on raw material exports (metals, energy); the persistent interest rate differential between Australia and the US, constrained by economic disparities; and the weak domestic Australian economy, which limits asset attractiveness to investors.

In this environment, the AUD behaves more like a “rebound without a clear trend” currency. Market profit-taking occurs whenever the AUD approaches previous highs, with selling pressure increasing, reflecting a lack of confidence in the currency. The AUD’s movements are often driven by external factors rather than its own fundamentals, which is a core reason why the market remains cautious about its prospects.

Key factors influencing the AUD’s future: three decisive variables

To accurately judge the medium- to long-term trend of the AUD, investors need to monitor three interacting key variables:

1. RBA monetary policy — Can the interest rate differential be rebuilt?

The Reserve Bank of Australia (RBA) currently has a cash rate of about 3.60%. Market expectations suggest possible rate hikes again in 2026, with the Commonwealth Bank of Australia even forecasting a peak of around 3.85%. If inflation remains sticky and the labor market stays resilient, the RBA’s hawkish stance could help the AUD rebuild its interest rate advantage; conversely, if rate hike expectations falter, the AUD’s support will weaken significantly.

2. China’s economy and raw material prices — External drivers of the AUD

Australia’s export structure is highly dependent on iron ore, coal, and energy, making the AUD essentially a commodity currency. China’s demand is the most critical variable. When China’s infrastructure and manufacturing activity pick up, iron ore prices tend to strengthen simultaneously, and the AUD usually reacts quickly; but if China’s recovery is weak, even short-term commodity rebounds may lead to a “spike and fall” pattern in the AUD.

3. US dollar trend and risk sentiment — Determinants of capital flows

The Federal Reserve’s policy cycle remains central to global FX markets. In a rate-cut environment, the dollar typically weakens, benefiting risk currencies like the AUD; but if risk aversion rises and capital flows back into the dollar, the AUD can weaken even if its fundamentals are stable. Current energy price volatility and sluggish global demand continue to favor safe-haven assets over the AUD, which is a cyclical currency.

For the AUD to break out into a genuine medium- to long-term bull market, three conditions must be met simultaneously: hawkish RBA stance, substantial improvement in Chinese demand, and a structural weakening of the dollar. If only one of these is present, the AUD is more likely to remain in a range rather than trend upward unilaterally.

How do institutions view the AUD’s future? Logic behind differing forecasts

The core question about the AUD’s future is: “Can the rebound turn into a trend?” Major institutions hold differing views.

Morgan Stanley expects the AUD/USD to rise to around 0.72 by the end of 2025, based on the possibility of the RBA maintaining a hawkish stance and support from commodity prices; Traders Union’s models project an average of about 0.6875 by the end of 2026 (range 0.6738–0.7012), rising further to 0.725 by 2027, emphasizing the strength of Australia’s labor market and commodity demand recovery.

UBS adopts a more conservative outlook, believing that despite Australia’s economic resilience, global trade uncertainties and Fed policy shifts could limit the AUD’s gains, with a forecast near 0.68 by year-end. Recent cautious forecasts from Australian economists suggest the AUD’s recovery may be short-lived, peaking around March 2026 and then retreating again by year-end.

Some Wall Street analysts warn that if the US avoids recession but the dollar remains strong due to rate advantages, the AUD will struggle to break through 0.67 resistance.

Overall, in the first half of 2026, the AUD is likely to fluctuate between 0.68 and 0.70, heavily influenced by Chinese data and US non-farm payrolls. The AUD is unlikely to crash sharply because of Australia’s solid fundamentals and the RBA’s relative hawkishness, but it also probably won’t reach parity at 1.0, as structural US dollar advantages persist. Short-term pressures stem from China’s data releases, while long-term support comes from Australia’s resource exports and the potential recovery of commodity cycles.

Investment strategies for entering the AUD market

As a commodity currency, the AUD remains highly correlated with raw material prices such as copper, iron ore, and coal. The RBA’s hawkish stance and strong commodity prices will provide short-term support, but in the medium to long term, global economic uncertainties and potential rebounds in the dollar could limit upside.

Although FX markets are volatile and precise predictions are difficult, the AUD’s high liquidity, strong volatility patterns, and clear economic structure make medium- to long-term trend judgments relatively easier. For investors considering entering the AUD market, key is to understand the interaction of the three major factors above, balancing risk and reward rather than blindly chasing short-term swings.

There are indeed investment opportunities in the AUD, but they require patience, discipline, and a deep understanding of macroeconomic fundamentals.