Analysis of the Reasons Behind the Weak AUD Trend and the Possibility of a Rebound

As the fifth-largest currency by trading volume globally, the Australian dollar (AUD) holds an important position in the foreign exchange market, and its exchange rate against the US dollar is one of the most actively traded currency pairs worldwide. Due to its liquidity and relatively low spreads, many investors prefer to use AUD for short-term trading or medium- to long-term positioning.

However, in recent years, the AUD’s performance has not been very satisfactory. As a typical commodity currency, the AUD’s fate is closely linked to global commodity prices. Since the Australian economy heavily relies on exports of iron ore, coal, copper, and other raw materials, any fluctuations in international commodity markets can cause significant volatility in the AUD exchange rate. Although the AUD was once favored for arbitrage trading due to its high interest rates, over the past decade, apart from the pandemic period when controlled measures and strong Asian demand led to a 38% increase in 2020, the AUD has mostly remained in a weak state.

10-Year Depreciation of 35%: Why Is the AUD in a Long-Term Weakness?

Since early 2013 at around 1.05, the AUD/USD has fallen by over 35% in the past decade, reflecting a broader macro trend—the systemic appreciation of the US dollar worldwide. During the same period, the US dollar index rose by 28.35%, while other major currencies like the euro, yen, and Canadian dollar also generally depreciated against the dollar, indicating we are in a strong dollar cycle.

The fundamental reasons for the AUD’s weakness include several factors. First, as a commodity currency, the AUD is highly correlated with global commodity markets, which have faced downward pressure since Q4 2024, putting the AUD under pressure. Second, the diminishing interest rate differential between the US and Australia has reduced the attractiveness of AUD as a high-yield currency investment. Third, domestic economic growth in Australia has been sluggish, with relatively low asset yields, making it less attractive to international capital inflows.

Entering 2025, the pressure on the AUD has intensified. Worries about escalating global trade tensions and recession fears drove the AUD/USD briefly down to 0.5933, a five-year low. Analysts believe that US tariff policies have directly impacted global trade, weakening commodity exports and thus diminishing the AUD’s commodity currency attributes. Additionally, with the bleak economic outlook in Australia and declining domestic asset attractiveness, international capital continues to flow out.

Early Signs of Rebound: Can the AUD Rally Again?

In the first half of 2025, a turnaround occurred. Iron ore and gold prices surged significantly, the Fed’s rate cut expectations increased, risk appetite improved, and the AUD rebounded. By September, the AUD/USD rose to as high as 0.6636, a new high since November 2024. Although it retreated slightly in the past two months, it has remained above 0.64, demonstrating resilience in the rebound.

Whether the AUD can continue to rise depends on the evolution of three key factors:

Australian Economy and Central Bank Policy Direction

In Q3 2025, Australia’s Consumer Price Index (CPI) increased by 1.3% month-over-month, surpassing market expectations and the previous quarter’s 0.7%. The Reserve Bank of Australia (RBA) emphasized that inflation pressures in housing construction and services sectors are more persistent than expected, and explicitly stated that only when inflation enters a sustainable downward trajectory will further policy easing be considered. This suggests that the likelihood of rate cuts in the near term has significantly decreased, and the cooling of easing expectations generally supports the AUD in the short term.

US Dollar Strength and Weakness Dynamics

In October, the Federal Reserve announced a 25 basis point rate cut to a 3.75%-4.00% range, but Chair Powell’s subsequent comments dampened expectations for further cuts. Despite market discussions about dollar depreciation and de-dollarization, the US dollar index has rebounded about 3% from its summer low of 96, with the possibility of breaking above 100 increasing. Historically, when the dollar appreciates, the AUD tends to weaken, and the two usually move inversely.

China’s Economic Recovery

Australia’s resource exports are highly dependent on China, which is its largest buyer of key raw materials like iron ore, coal, and natural gas. Whether China’s economy can show a strong recovery directly influences demand for Australian resources, making it a core support for the AUD. If China’s economy remains weak, especially with a sluggish property market, long-term demand for raw materials will decline, and the AUD will lose an important support.

AUD/USD Forecast and Trading Guide

Currently, the AUD/USD is in a stage of technical and fundamental tug-of-war. Based on current data and policy signals, the following characteristics are expected:

Short-term (1-3 weeks)

Expect fluctuations between 0.63 and 0.66. If inflation data remains positive and economic data stay stable, the AUD may test resistance above 0.66. Conversely, if global risk appetite deteriorates or the dollar regains strength, the AUD could fall back toward 0.63 or lower.

In trading, focus on the 0.6450 key resistance level. A break above this could signal a long entry targeting 0.6500 psychological level. If it falls below the 0.6373 support, consider short positions with a target near 0.6300.

Medium-term (1-3 weeks)

The medium-term trend depends on signals from Fed policy shifts and whether global trade risks ease. If US employment data weaken and inflation recedes, coupled with trade tensions easing, the AUD could benefit from risk sentiment recovery, with targets around 0.6550-0.6600. Conversely, if the US economy proves more resilient and the Fed delays rate cuts, the dollar may strengthen, and the AUD could test the year’s lows near 0.6250.

Long-term (over 3 months)

For long-term bullish outlooks, investors can consider gradually building positions at current lows, smoothing out market volatility over time. Once a confirmed bullish trend is established, incremental additions are advisable.

Outlook for AUD/RMB and AUD/MYR

Besides AUD/USD, other AUD crosses are also worth monitoring:

AUD/CNY

AUD/CNY closely follows AUD/USD, but since the RMB’s fluctuations are smaller, the decline in AUD/CNY may be slightly less pronounced than against USD. Over the next 1-3 months, considering RMB stability, this pair may oscillate between 4.6 and 4.75. If the RMB weakens due to domestic economic pressures, AUD/CNY could temporarily rise toward 4.8.

AUD/MYR

Malaysia’s economy also relies on exports and raw materials, making MYR sensitive to commodity prices. If global demand remains stable, MYR may strengthen relative to the AUD. The central bank’s policy stance will also influence the exchange rate. Amid global economic uncertainties, AUD/MYR is expected to fluctuate between 3.0 and 3.15. If Australia’s economic data deteriorate further, it could test support near 3.0.

Investment Advice and Risk Warning

Key Indicators to Watch

Australia’s CPI and economic growth data are critical for AUD movements. Equally important are US GDP, non-farm payrolls, and core PCE index, which directly influence Fed policy. Additionally, prices of commodities like iron ore and gold should not be overlooked.

Strategy Adjustment Suggestions

Reduce positions ahead of major data releases, waiting for market reactions before confirming directions. Also, closely monitor US-China trade tensions and geopolitical risks, as these can cause sharp volatility in the AUD in the short term.

Risk Warning

All investments carry risks, and forex trading is particularly high-risk. While the AUD is liquid, its volatility should not be underestimated. Investors should develop trading plans aligned with their risk tolerance, avoiding chasing gains or panic selling. Using partial position sizing, stop-loss orders, and regular adjustments can help manage risk.

Overall, the AUD/USD outlook for 2025 depends on the combined effects of global trade environment, central bank policy coordination, and commodity market performance. Investors need to understand these fundamentals thoroughly and combine them with technical signals to adjust strategies flexibly, aiming to seize opportunities amid AUD exchange rate fluctuations.