AUD 20-Year Trend Review: Why Has It Been Under Long-Term Pressure? Will the Pattern Change in 2026?

The Australian dollar, as the fifth most traded currency globally (ranked: USD, EUR, JPY, GBP, AUD), has always been a focus of international investors’ attention. The AUD/USD currency pair ranks fifth in global trading activity, characterized by high liquidity and low spreads, making it suitable for short-term or medium- to long-term positioning.

However, when viewed over a longer time horizon, the overall performance of the Australian dollar over the past 20 years has been disappointing. From 2005 to the present, the AUD has experienced multiple cycles, but the long-term trend has remained weak. Especially during the ten years from early 2013 to 2023, the AUD/USD depreciated by over 35%, while the US dollar index rose by 28.35%, reflecting a comprehensive “strong dollar cycle.” Other major currencies such as the euro, yen, and Canadian dollar also depreciated against the dollar, indicating that the AUD’s weakness is not an isolated phenomenon.

Why has the AUD continued to weaken over the past 20 years? The complex relationship between commodity cycles and exchange rates

As a “commodity currency,” the AUD’s movements are closely linked to commodity prices, especially iron ore, coal, and energy exports. Analyzing the AUD exchange rate over the past two decades reveals the following patterns:

2009-2011: The Golden Era Driven by China’s Recovery

• Background: China’s robust economic recovery and strong demand for raw materials
• Australian interest rates significantly higher than the US, attracting hot money inflows
• AUD/USD rose to nearly 1.05, a historical high

2020-2022: Post-Pandemic Commodity Bull Market

• Australia’s relatively stable pandemic control attracted safe-haven capital
• Global commodity prices surged, with iron ore reaching new highs
• The Reserve Bank of Australia (RBA) initiated a rapid rate hike cycle
• AUD/USD briefly broke above 0.80, appreciating about 38% within a year

2023-2024: Adjustment Due to Weak Chinese Recovery

• China’s economic momentum weakened, leading to declining demand for commodities
• The interest rate differential between Australia and the US gradually narrowed
• AUD/USD hovered in the 0.65-0.68 range

2025 to Present: Slow Recovery Phase

• Iron ore and gold prices rebounded, providing support
• The Federal Reserve’s rate cuts drove capital into risk assets
• AUD/USD rose to 0.6636, with an appreciation of about 5-7% for the year

Although the AUD’s performance improved in 2025, its weak trend has not fundamentally changed when viewed over a longer timeframe.

Three fundamental reasons why the AUD struggles to escape its predicament

1. Loss of interest rate advantage

The AUD has traditionally been viewed as a “high-yield currency,” mainly due to its interest rate advantage over the US. However, after the Fed’s aggressive rate hikes in 2022-2023, the US benchmark interest rate has remained relatively high, with the spread between the Federal Reserve’s cash rate and the RBA’s current cash rate (~3.60%) no longer competitive.

Although market expectations suggest the RBA may raise rates again to around 3.85% in 2026, if US rates stay high simultaneously, the space for interest rate differential rebuilding is limited. Investors’ interest in the AUD as a “high-yield currency” has waned, directly impacting its attractiveness.

( 2. Single-structure commodity exports

Australia’s economy is highly dependent on exports of iron ore, coal, and energy, with China being its largest buyer. When China’s economic growth slows, demand for Australian commodities declines, weakening the AUD’s position as a commodity currency.

Since 2023, China’s infrastructure and manufacturing activity have been sluggish. Despite efforts by the Australian government to diversify export markets, it remains highly dependent on China in the short term. This structural weakness makes the AUD vulnerable to fluctuations in China’s economic data.

) 3. Deteriorating global trade environment

Uncertainty in US tariff policies and tense global trade conditions further dampen demand for currencies of commodity-exporting countries. During risk-off periods, investors tend to hold US dollars rather than AUD, limiting the currency’s upside potential.

Three key indicators to observe the AUD’s trend

To determine the medium- to long-term direction of the AUD/USD, investors should focus on the following three factors:

Factor 1: RBA monetary policy and interest rate differential trends

The RBA’s rate hike or cut decisions directly influence the AUD’s attractiveness. If the RBA maintains a hawkish stance (further rate hikes or high rates), it will help rebuild interest rate advantage; if rate hike expectations fall short or the central bank shifts to easing, the AUD’s support will weaken significantly.

Factor 2: China’s economic data and commodity prices

As Australia’s largest trading partner, China’s infrastructure investment and manufacturing activity directly determine demand for commodities like iron ore. When China’s economic data improve, commodity prices tend to strengthen, and the AUD usually reacts quickly; conversely, the AUD may experience a “spike and retrace” pattern.

Factor 3: US dollar trend and global risk sentiment

The Federal Reserve’s policy cycle remains central to the global FX market. In a rate-cut environment, a weaker dollar generally benefits risk currencies like the AUD; however, if risk aversion rises and capital flows back into the dollar, the AUD may face downward pressure even if its fundamentals are stable.

Divergent forecasts from multiple institutions on the AUD’s future

Regarding the AUD/USD outlook beyond 2026, market opinions vary significantly:

Optimistic view: Morgan Stanley expects the AUD/USD to rise to 0.72, mainly based on the RBA maintaining a hawkish stance and strong commodity prices. The Traders Union statistical model projects 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, assuming a resilient Australian labor market and a recovery in commodity demand.

Conservative view: UBS believes that uncertainties in global trade and changes in Fed policy could limit the AUD’s upside, with the exchange rate remaining around 0.68 by year-end. The CBA economics team offers a more cautious outlook, suggesting the AUD’s recovery may be short-lived, peaking around March 2026, then retreating again by year-end. Some Wall Street analysts warn that if the US avoids recession but the dollar remains super-strong, the AUD will struggle to break through 0.67 resistance.

Market consensus: The AUD has short-term recovery potential, but for a true 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 fulfilled, the AUD is more likely to remain range-bound rather than trend upward.

Reasonable expectations for the AUD exchange rate in 2026

Based on the above analysis, the AUD is likely to fluctuate between 0.68 and 0.70 in the first half of 2026, influenced by China’s economic data and US non-farm payroll reports. In the short term, Australia’s fundamentals remain relatively stable, and the RBA’s hawkish stance provides support; however, the long-term structural advantage of the US dollar persists, making a rapid return to 1.0 unlikely.

Short-term pressures mainly stem from China’s economic data, while long-term upside potential comes from a potential recovery in Australia’s resource exports and commodity cycles. Investors should stay alert and closely monitor these indicators’ changes.

Risks and opportunities in AUD investment

The high liquidity and strong volatility patterns of the AUD/USD make medium- to long-term trend judgments relatively straightforward. Many investors participate in the AUD market through forex margin trading, utilizing long and short positions and leverage tools to capture opportunities from exchange rate fluctuations.

However, it must be emphasized that all investments carry risks. Forex trading is a high-risk activity, and investors may lose all their capital. Before engaging in AUD trading, investors should fully understand market mechanisms, risk management strategies, and develop a reasonable trading plan based on their risk tolerance.

Conclusion on AUD investment

As a commodity currency, the AUD remains highly correlated with prices of iron ore, copper, coal, and other raw materials. Market analysis suggests that in the short term, the hawkish stance of the RBA and strong commodity prices will provide support; but in the medium to long term, global economic uncertainties and potential US dollar rebounds will limit upside and may lead to more volatile movements.

Although forex markets are volatile and predicting exchange rate trends is inherently challenging, the AUD’s high liquidity, relatively stable volatility patterns, and economic structure make medium- to long-term trend analysis more accessible. Investors should focus on fundamental changes over the medium to long term rather than chasing short-term fluctuations.