Is there a turning point in the AUD exchange rate trend? An in-depth analysis of the shift from a weak currency to a rebound opportunity

The Australian dollar is the fifth most traded currency globally, alongside the US dollar, euro, Japanese yen, and British pound. As a “commodity currency,” the AUD is closely linked to global raw material prices—Australia’s economy heavily depends on exports of iron ore, coal, copper, and other bulk commodities. Therefore, fluctuations in international commodity prices often trigger sharp changes in the AUD exchange rate.

In recent years, the AUD’s exchange rate trend has been relatively flat. From a level of 1.05 at the beginning of 2013, the Australian dollar depreciated over 35% against the US dollar between 2013 and 2023, while the US dollar index rose by 28.35% during the same period. This is not unique to the AUD—EUR, JPY, and CAD have also depreciated against the dollar, reflecting a global “strong dollar cycle.”

Why Does the AUD Keep Under Pressure? Key Factors at a Glance

Slowing Commodity Demand and Weakening Economic Fundamentals

Once favored as a high-yield currency and arbitrage darling, the AUD’s halo has faded in recent years. In Q4 2024, the AUD/USD plunged sharply, with an annual decline of about 9.2%. Entering 2025, escalating global trade tensions have worsened this situation—at one point, the AUD fell to 0.5933, a five-year low. Analysts point out that US tariff policies have impacted global trade, leading to declines in Australia’s raw material exports (metals, energy), directly weakening the AUD’s commodity currency attributes.

Meanwhile, the interest rate differential between Australia and the US remains difficult to reverse. Domestic economic growth has slowed, and capital continues to flow out of Australia, making Australian assets less attractive.

Inflation Pressures and the Central Bank’s Balancing Act

In Q3 2025, Australia’s Consumer Price Index (CPI) rose 1.3% month-over-month, significantly higher than the previous quarter’s 0.7% and exceeding market expectations. The Reserve Bank of Australia (RBA) emphasized multiple times that core inflation pressures in housing construction and services are more stubborn than anticipated, indicating that further easing policies will only be considered once inflation enters a sustainable downward trajectory. This has greatly reduced market expectations for recent RBA rate cuts and cooled the prospects for easing.

Where Is the Future of the AUD Exchange Rate Heading?

Three Core Drivers

First: RBA Policy Direction

The RBA remains cautious, providing some support to the AUD in the short term. However, if global economic data continue to weaken, expectations for rate cuts could rise again. The future of the AUD largely depends on how the RBA balances inflation control with economic growth.

Second: Strength of the US Dollar Index

Although the Federal Reserve has begun a rate-cut cycle, signals suggest the pace of further cuts may slow. Since hitting a bottom near 96 this summer, the US dollar index has shown unexpected resilience, rebounding about 3%, with the possibility of breaking above 100 increasing. Historically, a stronger dollar tends to weaken the AUD—these two often move inversely.

Third: China’s Economic Recovery

Australia’s economy is highly dependent on resource exports, with China being its largest buyer. China’s demand for iron ore, coal, natural gas, and other raw materials directly influences the AUD’s long-term performance. When China’s economy recovers strongly, resource exports and prices rise simultaneously, providing strong support for the AUD; conversely, if China’s growth slows, especially with ongoing real estate weakness, long-term raw material demand will suffer, and the AUD will lose key support.

Divergent Forecasts from Major Institutions on the AUD Outlook

Major financial institutions have differing views on the AUD’s prospects. Morgan Stanley is more optimistic, expecting the AUD/USD to rise to 0.72 by the end of 2025, supported by the RBA’s hawkish stance and rising commodity prices.

UBS is more cautious, believing that despite resilience in Australia’s domestic economy, global trade uncertainties and Fed policy changes could limit AUD gains, with the exchange rate expected to stay around 0.68 by year-end.

CBA economists are the most conservative, suggesting that this AUD recovery may be short-lived, predicting a peak around March 2026, followed by a potential decline. They believe that although the dollar may weaken in 2025, if US economic growth surpasses other major economies, the dollar could strengthen again.

Currency-Specific Forecasts for the AUD

Short to Medium-Term Outlook for AUD/USD

The RBA maintained interest rates at 3.6% in November, signaling caution. Currently, the AUD/USD hovers around 0.65. In the short term, expect fluctuations between 0.63 and 0.66. If inflation data remain positive and the economy stays stable, the AUD may test resistance above 0.66; if global risk appetite deteriorates or the dollar rebounds, the AUD could fall back to 0.63 or lower.

Watchpoints for AUD/CNY

Stability in China-Australia trade relations positively influences this pair. Weak Chinese economic data (e.g., October services PMI at 52.6) could pressure the yuan, but US tariff reductions might ease yuan depreciation pressures. Over the next 1-3 months, with the yuan relatively stable, expect AUD/CNY to fluctuate between 4.6 and 4.75; if the yuan weakens due to internal and external pressures, the AUD may short-term rise toward 4.8.

Trend for AUD/MYR

This pair depends on regional economic differences and central bank policies. Amid global economic uncertainty, AUD/MYR may fluctuate between 3.0 and 3.15. If Australia’s economic data weaken further, it could test support near 3.0.

Investment Strategy Framework for the AUD

Short-term Trading (1-3 days)

Use range trading strategies. When the AUD stabilizes above 0.6450, consider small long positions targeting the 200-day moving average at 0.6464 and psychological level 0.6500; these signals are more reliable if US data are weaker or Australian CPI unexpectedly warms. Conversely, if it breaks below 0.6373, consider short positions targeting 0.6336 or even 0.6300. Be cautious before data releases; reduce positions or stay on the sidelines.

Medium-term Positioning (1-3 weeks)

Follow the trend. In a bullish scenario, if Fed rate cut expectations rise and trade tensions ease, the AUD could benefit from risk sentiment, targeting 0.6550-0.6600. In a bearish scenario, if US economic resilience exceeds expectations and the dollar regains strength, the AUD could fall toward 0.6250.

Long-term Allocation

If bullish on the AUD long-term, consider gradually building positions at current lows, smoothing out market volatility over time. The ultimate direction depends on signals from Fed policy shifts and whether global trade risks ease.

Core Judgment on the AUD Exchange Rate

Currently, the AUD/USD is in a phase of technical oscillation and fundamental debate. As a commodity currency, it has both advantages and disadvantages: on one hand, as the fifth-largest traded currency, it offers high liquidity and low spreads, suitable for short-term trading and medium- to long-term positioning; on the other hand, its heavy reliance on commodity prices and China’s economic performance makes it vulnerable to external shocks.

In the short term, range trading is recommended, with breakout follow-up. The medium- to long-term direction depends on Fed policy shifts and whether global trade conditions improve. Traders should closely monitor market sentiment before and after economic data releases and adjust strategies flexibly. The evolution of the AUD exchange rate still requires time to verify; a cautious and adaptable approach is the best strategy.