AUD exchange rate: a decade of decline and rebound opportunities — mastering the bullish and bearish shifts of commodity currencies

Why has the Australian dollar remained persistently weak against the US dollar over the past decade? This involves complex global economic cycles, changes in commodity demand, and the consolidation of the US dollar’s dominant position. As one of the top five most traded currencies worldwide, the AUD/USD pair boasts high liquidity and low spreads, yet has depreciated over 35% in the past ten years, far underperforming the 28% surge of the US dollar index. To understand the future trajectory of the AUD, one must first recognize this historical background.

A Decade in Review: The Double Impact of Commodity Prices and Interest Rate Differentials

The AUD is often regarded as a “commodity currency,” stemming from Australia’s export structure, which is highly concentrated in iron ore, coal, and energy. Over the past decade, the strength or weakness of the AUD has directly reflected the interaction of three core variables: commodity prices, interest rate differentials, and global risk appetite.

Between 2009 and 2011, China’s robust economic recovery drove a surge in commodities, and the Reserve Bank of Australia (RBA) adopted a relatively aggressive rate hike cycle, causing the AUD interest rate differential to rise significantly above the US. The AUD/USD briefly reached a high of 1.05. However, from 2012 onward, as China’s growth slowed and commodities entered a prolonged consolidation phase, the AUD gradually entered a long-term depreciation trend.

A brief reversal occurred during the COVID-19 pandemic in 2020. Australia’s relatively stable pandemic control, strong demand for raw materials from Asian markets, and accommodative monetary policy pushed the AUD/USD up by about 38% within a year. Yet, this rebound did not reverse the long-term downtrend. Since 2022, the global rate hike cycle has made US interest rate differentials less favorable for the AUD, and China’s sluggish economic recovery has weakened iron ore demand, causing the AUD to fall back into a consolidation pattern.

Since early 2025, iron ore and gold prices have resumed their upward trend, and the Federal Reserve has entered a rate-cutting cycle. The AUD/USD briefly rebounded to 0.6636, with an annual increase of about 5-7%. However, on a longer-term scale, the AUD remains structurally weak, lacking clear signals of a trend reversal.

Why Is the AUD Difficult to Sustain an Uptrend? Three Structural Constraints

Despite recent rebounds in commodity prices and a weakening US dollar, the AUD still struggles to establish sustained upward momentum. The fundamental reasons lie in three levels of constraints:

Loss of Interest Rate Advantage
The RBA’s cash rate is around 3.60%, slightly above previous levels, but market expectations suggest possible rate hikes in 2026. If hikes materialize as expected, the interest rate differential advantage could temporarily reemerge; if not, the AUD will lose a key support. Compared to the past decade when Australia’s interest rates were significantly higher than the US, this advantage has diminished, directly weakening the AUD’s appeal as a high-yield currency.

Structural Decline in Commodity Demand
Rising global trade protectionism and US tariff uncertainties have directly impacted Australia’s raw material export prospects. Particularly, China’s insufficient economic recovery limits demand growth for iron ore, coal, and other commodities, causing the AUD to lose its “external engine.” Even if short-term commodity prices rebound, the medium- to long-term demand outlook remains weak, making sustained gains difficult.

Persistent Structural US Dollar Advantage
Despite the Fed’s rate-cutting cycle, the US dollar index remains relatively strong. This reflects ongoing global risk aversion and capital flight into US assets. Under this environment, risk-sensitive currencies like the AUD tend to face selling pressure even if their fundamentals are stable. Whenever the AUD approaches previous highs, selling pressure increases, illustrating this psychological reality.

Three Key Indicators for Judging the AUD’s Future Direction

Investors aiming to identify the turning points in the AUD should focus on the following three aspects:

1. RBA Monetary Policy and Interest Rate Differential Rebuilding
The hawkish stance of the RBA is a short-term support for the AUD. If inflation remains sticky and the labor market stays resilient, maintaining a hawkish policy stance will help rebuild the interest rate differential with the US. Conversely, if rate hike expectations fade, the AUD will lose a critical support.

2. China’s Economy and Commodity Prices
As a commodity currency, the medium- to long-term fate of the AUD is closely tied to China’s infrastructure and manufacturing sector health. Iron ore and coal prices are the most direct indicators. When China’s demand recovers, the AUD typically reflects this quickly; when demand weakens, even short-term commodity rebounds may not sustain the currency’s gains.

3. US Dollar Trends and Global Risk Appetite
The Fed’s policy cycle remains the core logic of the global forex market. A rate-cut environment generally benefits risk-sensitive currencies like the AUD; however, if risk aversion rises and capital flows back into the US dollar, the AUD may weaken even without fundamental deterioration. Recent weak global demand and energy prices have increased risk aversion, limiting the AUD’s upside.

For the AUD to break out into a genuine medium- to long-term bull trend, three conditions must be met simultaneously: the RBA adopts a hawkish stance again, China’s demand substantially improves, and the US dollar enters a structural weakening phase. Meeting only one of these conditions is more likely to result in range-bound trading rather than a sustained rally.

Divergent Forecasts from Major Institutions on the AUD’s Future

Market opinions on the AUD beyond 2026 show clear divergence, reflecting macroeconomic uncertainties:

Optimistic Outlook
Morgan Stanley projects the AUD/USD could rise to 0.72 by the end of 2025, based on assumptions of continued hawkish RBA policies and commodity price support. The Traders Union model is more aggressive, forecasting an average of about 0.6875 in late 2026 and further rising to 0.725 by 2027, emphasizing strong Australian labor markets and commodity demand recovery.

Conservative Viewpoints
UBS believes that global trade uncertainties and potential changes in Fed policy will limit the AUD’s upside, expecting the exchange rate to stay around 0.68 by year-end. The Commonwealth Bank’s economic team is more cautious, predicting a short-term rebound to a high point around March 2026, but a possible decline before 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.

Combining these perspectives, the AUD is likely to oscillate between 0.68 and 0.70 in the first half of 2026, influenced by Chinese data and US non-farm payroll figures. Medium-term fundamentals remain supportive, with the RBA relatively hawkish, but the structural US dollar advantage persists, making a move toward parity unlikely. Short-term pressures mainly stem from Chinese economic data, while long-term upside potential hinges on a potential recovery in Australia’s resource exports and commodity cycles.

Comparing the AUD and TWD Trends

Over the past decade, both the AUD and TWD have faced downward pressure, but driven by different factors. The AUD is mainly affected by commodity cycles and US dollar strength, while the TWD is more influenced by the tech sector and US-China relations. Both currencies experienced short-term rebounds during the 2020 pandemic but returned to consolidation afterward. Analyzing their ten-year trajectories reveals that neither has broken the long-term downtrend against the US dollar, reflecting the dollar’s dominant global position.

Risks and Opportunities in Investing in the AUD

As one of the top five most traded currency pairs globally, the AUD/USD offers high liquidity and predictable volatility, making it relatively suitable for technical analysis. However, forex trading is inherently high risk, and investors may lose all their capital.

For small- to medium-sized investors, forex margin trading provides a two-way trading mechanism with leverage ratios from 1 to 200, lowering entry barriers. Investors can seek profits in bullish markets or find shorting opportunities in bearish markets. Yet, the high leverage is a double-edged sword—it amplifies gains but also magnifies losses.

Prudent risk management, clear trading plans, and continuous monitoring of macroeconomic developments are essential prerequisites for participating in AUD trading.

Conclusion: A Medium- to Long-Term Framework for the AUD’s Trajectory

The decade-long trend of the AUD fundamentally reflects a larger global economic cycle—from the commodity supercycle, China’s rapid growth, and Australia’s aggressive rate hikes during its golden era, to a phase of commodity demand saturation, slowing global growth, and the adjustment of the US dollar’s structural advantage.

In the short term, hawkish RBA policies and commodity rebounds will support upward movement; however, medium- to long-term risks include global economic uncertainties and potential US dollar rebounds. The AUD’s high liquidity and distinct economic structure make medium- to long-term trend assessment relatively straightforward, but any macroeconomic change can quickly impact exchange rates.

For investors, the key is not to blindly chase short-term rebounds but to continuously monitor the dynamics of the RBA policy, Chinese economic data, and commodity prices to determine whether the rebound has the potential to develop into a trend. Without the simultaneous strengthening of these three factors, the AUD is more likely to remain range-bound rather than establish a lasting upward trend.