Why has the AUD/USD remained under long-term pressure? An in-depth analysis of the three major challenges facing the Australian dollar exchange rate and future prospects

The Australian dollar (AUD) is one of the top five major currencies by global trading volume (USD, EUR, JPY, GBP, AUD). The AUD/USD currency pair is highly liquid with tight spreads, attracting a large number of active traders. For a long time, the AUD has been regarded by the market as a high-yield asset, becoming an important target for carry trades and hot money flows. However, when looking at the performance over the past decade from a long-term perspective, the AUD has generally shown a weak trend, with rebounds occurring only during specific periods.

An exception was during the 2020 pandemic. At that time, Australia’s pandemic control was relatively stable, demand for commodities like iron ore in Asia was strong, and the Reserve Bank of Australia (RBA) implemented supportive policies, jointly driving the AUD/USD to rise approximately 38% within a year. Since then, the AUD has mostly been consolidating or weakening. From the second half of 2025, iron ore and gold prices rose, and the Federal Reserve’s rate cuts led to capital flowing into risk assets, pushing the AUD/USD briefly up to 0.6636. During that year, the AUD/USD appreciated by about 5-7% overall, but in a longer-term view, the AUD remains relatively weak.

Commodity Cycle Recovery Difficult to Change the Structural Weakness of the AUD

The AUD has underperformed over the past decade, with diminishing interest rate differentials and declining commodity demand. Starting from a level of 1.05 in early 2013, the AUD/USD depreciated by over 35% from 2013 to 2023, while the US dollar index increased by 28.35% during the same period. In comparison, other major currencies like the euro, yen, and Canadian dollar also depreciated against the USD, reflecting a global cycle of a strengthening dollar. Both technical and fundamental analyses indicate that the AUD is at a disadvantage, and even when it rebounds, it struggles to sustain high levels.

Market observations suggest that the main reasons for the persistent pressure on the AUD include: the impact of US tariff policies on global trade, a decline in raw material exports (metals, energy), weakening the commodity currency status; difficulty in reversing the interest rate differential between Australia and the US; and domestic economic weakness in Australia, which reduces asset attractiveness. Therefore, the AUD is more like a “rebound but lacking a trend” currency. Without clear growth momentum and interest rate advantages, the AUD is easily influenced by external factors rather than its own fundamentals, which is a core reason for market caution towards the AUD.

Three Key Factors to Monitor for AUD Trends

The medium- to long-term performance of the AUD is influenced by multiple factors. To judge the turning points of the AUD’s bullish or bearish trend, investors should focus on the following three indicators:

First, the RBA’s interest rate policy

The AUD has long been regarded as a high-yield currency, with its attractiveness heavily dependent on the interest rate differential. Currently, Australia’s cash rate is about 3.60%, and the market is gradually shifting expectations toward a possible rate hike in 2026. The Reserve Bank of Australia (RBA) forecasts the peak rate could reach 3.85%. If inflation remains sticky and the employment market stays resilient, a hawkish stance from the RBA will help the AUD rebuild its interest rate advantage; conversely, if rate hike expectations falter, the AUD’s support will weaken significantly.

Second, changes in China’s economy and commodity prices

Australia’s export structure is highly dependent on iron ore, coal, and energy, making the AUD essentially a 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 simultaneously, and the AUD/USD chart often quickly reflects this change. Conversely, if China’s recovery is insufficient, even short-term commodity rebounds may lead to a “spike and fall” pattern in the AUD.

Third, the USD trend 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, and the AUD benefits accordingly; but if risk aversion rises and capital flows back into the USD, the AUD may weaken even if its fundamentals are unchanged. Recently, market sentiment has slightly improved, but energy prices and global demand remain cautious. Investors tend to prefer safe-haven assets over cyclical currencies like the AUD, limiting its upside potential.

For the AUD to break out 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 USD. If only one of these is present, the AUD is more likely to remain in a range-bound oscillation.

Divergent Forecasts from Major Institutions on AUD Outlook

The key to the AUD’s future trend lies in whether the rebound can turn into a trend. Major institutions show significant divergence in their outlooks for AUD/USD.

Optimistic forecasts believe that if the US economy achieves a soft landing and the dollar index declines, it will favor commodity currencies. Morgan Stanley projects AUD/USD could rise to 0.72 by the end of 2025, mainly based on the possibility that the RBA maintains a hawkish stance and supported by rising commodity prices. Traders Union’s statistical model indicates an average of about 0.6875 (range 0.6738-0.7012) by the end of 2026, rising further to 0.725 by the end of 2027.

Cautious analysis remains skeptical about the upside potential. UBS believes that despite Australia’s resilient economy, uncertainties in global trade and potential changes in the Fed’s policy could limit the AUD’s gains, with an expected exchange rate around 0.68 by year-end. Recent comments from Commonwealth Bank economists suggest that the AUD’s recovery might be short-lived, predicting a peak around March 2026, followed by a possible decline by year-end. Some Wall Street analysts warn that if the US avoids recession but the dollar remains super-strong due to interest rate differentials, the AUD will struggle to break through 0.67 resistance.

Combining various perspectives, the AUD/USD is likely to oscillate between 0.68 and 0.70 in the first half of 2026, influenced by Chinese economic data and US non-farm payrolls. The AUD is unlikely to crash sharply (given Australia’s solid fundamentals and the relatively hawkish RBA), but also unlikely to surge to 1.0 (due to structural dollar strength). Short-term pressures mainly stem from Chinese data, while long-term positives come from resource exports and commodity cycles.

Forex Margin Trading: An Investment Approach to Participate in AUD Trends

As one of the top five most traded currency pairs globally, the AUD/USD exchange rate is affected by multiple factors. Although currency rates are inherently difficult to predict precisely, the AUD’s distinctive features—high liquidity and strong volatility—make analyzing its price charts relatively straightforward.

Investors can participate in the AUD market through forex margin trading. These trading instruments allow for both long and short positions with leverage (typically 1-200x), enabling traders to seek profits during upward trends or potential gains during downward movements. The trading barriers are relatively low, making it suitable for small and medium-sized investors.

It is important to note that all investments carry risks. Forex trading is a high-risk activity, and investors may face the risk of losing their entire capital.

Summary: Long-term Outlook for the AUD

As a “commodity currency” of a major commodity-exporting country, the AUD is highly correlated with prices of raw materials like copper, iron ore, and coal. In the short term, the hawkish stance of the RBA and strong commodity prices will provide support. However, in the medium to long term, global economic uncertainties and potential rebounds in the dollar will limit the AUD’s upside, leading to more volatile movements.

Although forex markets are volatile and difficult to predict with precision, the AUD’s high liquidity, strong volatility patterns, and its economic structure make medium- to long-term trend judgments relatively easier. For investors tracking the AUD/USD chart, key factors include continuously monitoring RBA policies, Chinese economic data, and USD movements to adjust trading strategies accordingly.