Why has the Australian dollar been in a long-term downturn? Future trends and key factors affecting the AUD to TWD exchange rate

The Australian dollar is one of the top five most traded mainstream currencies globally, and the “AUD/USD” currency pair also ranks among the most active in the world. This currency pair not only offers ample liquidity and tight spreads but also provides traders with efficient opportunities for short-term trading and medium-term positioning.

It is worth noting that the Australian dollar has long been regarded as a high-yield currency, often used by investors for carry trades. However, from a ten-year perspective, the overall performance of the AUD has been quite weak, with only certain periods showing significant rebounds.

Ten-Year Review of AUD Trends: Why Has It Remained in a Depreciation Cycle?

During the COVID-19 pandemic in 2020, the AUD experienced a strong performance. At that time, Australia’s relatively stable pandemic control measures, the massive demand for raw materials like iron ore in Asia, and supportive policies from the Reserve Bank of Australia (RBA) jointly drove the AUD/USD up by approximately 38% within a year. However, after this rebound, the AUD mostly entered consolidation or weakened for most of the time.

Entering the second half of 2025, benefiting from soaring iron ore and gold prices, along with the Fed’s rate cuts boosting risk assets, the AUD exchange rate fluctuated higher. The AUD/USD once climbed to 0.6636, with the full-year appreciation around 5–7%. Nevertheless, from a longer-term view, the AUD’s trend still remains weak.

Calculating from the early 2013 level of 1.05, the AUD has depreciated by over 35% over the past decade. During the same period, the US dollar index rose by 28.35%, and the euro, yen, and Canadian dollar against the USD also showed depreciation trends, reflecting a comprehensive strong dollar cycle.

Once the AUD rebounds near previous highs, market selling pressure increases, indicating limited market confidence in a sustained rally. The main reasons include: US tariff policies impacting global trade, obstacles to Australia’s raw material exports, difficulty in reversing the US-Australia interest rate differential, and sluggish domestic economic growth. Therefore, the AUD is more like a “rebound but lacking a clear trend” currency, easily influenced by external factors rather than fundamentals.

Three Major Factors Influencing AUD Trends

To grasp the medium- to long-term bullish or bearish shifts of the AUD, investors should focus on the following three core variables:

1. RBA Interest Rate Policy and Yield Spread Structure

The long-term attractiveness of the AUD heavily depends on its interest rate advantage. The RBA’s cash rate is currently around 3.60%, with market expectations of another rate hike in 2026. The Commonwealth Bank of Australia forecasts a peak rate possibly reaching 3.85%.

If inflation remains sticky and the employment market stays resilient, a hawkish stance from the RBA will help rebuild the AUD’s yield advantage. Conversely, if rate hike expectations fall short, the AUD’s support will weaken significantly.

2. China’s Economy and Commodity Price Momentum

Australia’s export structure is highly concentrated in 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 sectors rebound, iron ore prices tend to strengthen simultaneously, and the AUD usually reacts quickly in the exchange rate; conversely, if China’s recovery lacks momentum, even short-term commodity rebounds may lead to “spikes followed by declines” in the AUD.

3. US Dollar Trends and Global Risk Sentiment

From a capital flow perspective, the Fed’s policy cycle remains a key driver in the global FX market. In a rate-cut environment, the US dollar typically weakens, benefiting risk currencies like the AUD; but if risk aversion rises and capital flows back into the dollar, the AUD may face pressure even if fundamentals are unchanged. Recently, energy prices and global demand remain subdued, and investors tend to avoid risk assets rather than follow cyclical currencies, limiting the upside potential of the AUD.

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 US dollar. If only one of these is present, the AUD is more likely to remain in a range-bound oscillation rather than a one-way rally.

Institutional Divergence on Future AUD Outlook

The core question for the AUD’s future performance is whether the “rebound can turn into a trend.” Market opinions diverge significantly regarding the AUD’s trajectory beyond 2026:

Optimistic View

Morgan Stanley forecasts that by the end of 2025, the AUD/USD could rise to 0.72, mainly supported by the RBA’s hawkish stance and commodity prices. The Traders Union’s 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, emphasizing Australia’s strong labor market and commodity demand recovery. These optimistic forecasts assume a soft landing for the US economy and a decline in the US dollar index.

Cautious View

UBS adopts a more cautious stance, believing that despite Australia’s resilient economy, global trade uncertainties and Fed policy shifts could limit the AUD, with an expected exchange rate around 0.68 by year-end. Economists at the Commonwealth Bank of Australia are more conservative, suggesting that the AUD’s recovery may be short-lived, forecasting a peak around March 2026, followed by a potential decline by year’s 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.

Overall market judgment suggests that in the first half of 2026, the AUD will likely fluctuate within 0.68–0.70, with short-term pressures mainly from China’s data volatility and long-term bullishness driven by Australia’s resource exports and commodity cycle recovery.

The Correlation Between AUD and TWD Exchange Rates

The fluctuations of the AUD/USD also influence the AUD/TWD exchange rate. When the AUD weakens against the USD, if the TWD/USD remains relatively stable, the AUD/TWD depreciation will be more pronounced. Conversely, if the TWD also faces depreciation, the decline in AUD/TWD may be partially offset. Taiwanese investors interested in the AUD/TWD trend should not only monitor the AUD fundamentals but also keep an eye on the USD/TWD movements.

Key Insights for Investing in AUD

As one of the top five most traded forex pairs globally, the AUD/USD is influenced by multiple factors. Although currency exchange rates are inherently difficult to predict precisely, Australia’s economic structure and liquidity make its medium- to long-term trend relatively easier to analyze.

As a commodity currency, the AUD is highly correlated with prices of copper, iron ore, coal, and other raw materials. In the short term, hawkish RBA policies and strong commodity prices provide support; but in the medium to long term, global economic uncertainties and potential US dollar rebounds will limit the upside, possibly leading to increased volatility.

Despite the rapid fluctuations and inherent difficulty in precise forecasting, the AUD’s high liquidity, predictable volatility patterns, and economic structure make medium- to long-term trend assessment more accessible. For investors focusing on the AUD or AUD/TWD exchange rate, understanding these three core factors will help make more informed trading decisions.