The Truth Behind the Australian Dollar Depreciation: Current Trend Analysis and Future Outlook

AUD is one of the top five most actively traded currencies globally. The AUD/USD currency pair attracts many traders due to its liquidity and narrow spreads. However, over the past decade, this former “high-yield darling” has shown a clear depreciation trend.

Fundamental Reasons for the AUD’s Decade of Depreciation

The Fate of Commodity Currencies

Australia’s economy is highly dependent on exports of raw materials such as iron ore, coal, and copper, which makes the AUD a typical commodity currency. When global commodity prices fall, the AUD often bears the brunt of the impact.

Historical data shows that AUD/USD, which peaked at 1.05 in early 2013, has depreciated over 35% in ten years. During the same period, the US Dollar Index (DXY) rose by 28.35%, indicating a strong dollar cycle. Major currencies like the euro, Japanese yen, and Canadian dollar face similar challenges. This is not unique to the AUD but reflects the broader dominance of the US dollar within the global currency system.

Disappearance of Interest Rate Differentials and Diverging Central Bank Policies

Once a popular target for “carry trades,” the AUD’s attractiveness is waning. The interest rate differential between Australia and the US has become difficult to reverse, coupled with slowing domestic economic growth, leading to a decline in asset appeal and continuous outflows of hot money.

In Q4 2024, the AUD/USD fell approximately 9.2% for the year. Entering 2025, amid escalating global trade tensions and recession fears, the AUD briefly dropped to 0.5933, a five-year low. Tariff policies impacting global trade have directly weakened Australia’s raw material export prospects, further pressuring the AUD.

AUD Exchange Rate Forecast: Three Key Factors Determine the Trend

Reserve Bank of Australia Policy and Domestic Economy

In Q3 2025, Australia’s Consumer Price Index (CPI) rose 1.3% month-over-month, exceeding market expectations. The RBA has explicitly stated that it will only consider further easing after inflation enters a sustainable downward trajectory. This indicates limited scope for rate cuts in the short term.

Higher-than-expected inflation data has significantly lowered market expectations for a rate cut in November. The RBA’s cautious stance on easing has, paradoxically, provided some support to the AUD in the short term.

Key Impact of US Dollar Strength or Weakness

The Federal Reserve announced a 25 basis point cut to the federal funds rate to a 3.75%-4.00% range in October, but Chair Powell’s subsequent comments cooled market expectations for further rate cuts. The US Dollar Index (DXY), which bottomed at 96 in June, has shown resilience, rebounding about 3%, with increasing chances of breaking above 100.

When the dollar strengthens, the AUD tends to weaken, showing an inverse relationship. If the dollar continues to perform strongly, AUD forecasts face downside risks.

China’s Economic Recovery as a Core Variable

Australia’s reliance on resource exports makes Chinese demand a decisive factor. As Australia’s largest buyer of iron ore, coal, and natural gas, China’s economic performance directly influences the AUD outlook.

When China’s economy is robust, resource exports and prices rise, providing strong support for the AUD. Conversely, if China’s recovery slows, especially with persistent weakness in the property market, raw material demand prospects dim, and the AUD may weaken accordingly.

AUD Exchange Rate Forecast and Major Currency Pair Trends

AUD/USD

In September, AUD/USD rose to 0.6636, the highest since November 2024. Currently, it fluctuates around 0.64. The RBA maintained interest rates at 3.6% in November, signaling caution and emphasizing inflation concerns.

Short-term forecast: AUD/USD may fluctuate between 0.63 and 0.66. If inflation data remains positive and the economy stabilizes, it could test resistance above 0.66. If global risk appetite deteriorates or the dollar rebounds, the AUD may fall back toward 0.63.

AUD/CNY

The outlook for AUD against the Chinese yuan depends on Sino-Australian trade conditions and China’s currency policies. Progress in US-China trade negotiations (such as tariff reductions) could ease downward pressure on the yuan.

Short-term forecast: With the yuan relatively stable, AUD/CNY may range between 4.6 and 4.75. If China’s economy weakens further, especially with ongoing property market sluggishness, AUD/CNY could briefly rise toward 4.8.

AUD/MYR

Malaysia’s economy relies heavily on exports and raw materials, making the ringgit sensitive to commodity prices. If the Malaysian central bank adopts a tighter policy, the ringgit could strengthen.

Short-term forecast: AUD/MYR may fluctuate between 3.0 and 3.15. If Australian economic data weakens further, it could test support near 3.0.

Trading Strategies for Different Timeframes

Short-term Trading (1-3 days): Range Trading

Watch resistance at 0.6450; if it holds, consider long positions targeting the 200-day moving average at 0.6464 and the psychological level at 0.6500. Support is at 0.6373; if broken, consider short positions targeting 0.6336 to 0.6300.

Ahead of US GDP, core PCE, and Australian CPI releases, reduce positions as data may trigger increased volatility.

Medium-term Trading (1-3 weeks): Trend-following

Bullish scenario: Expectations of Fed rate cuts rise, US employment data softens, inflation declines, boosting risk sentiment. Target 0.6550-0.6600. A break above the 200-day moving average could confirm a reversal, prompting additional longs.

Bearish scenario: US economic resilience delays rate cuts, trade tensions escalate, China’s economic data weaken, and AUD could fall toward 0.6250.

Long-term Holding Strategy

If bullish on the AUD, consider accumulating on dips, smoothing out market volatility over time. Increase positions gradually once a clear uptrend is confirmed.

Risks and Opportunities in AUD Investment

While AUD forecasts involve significant volatility, this also creates trading opportunities. The dual-direction trading mechanism allows investors to profit in both bull and bear markets.

However, all investments carry risks. Forex trading is high-risk, requiring proper risk management. It is recommended to set clear stop-loss levels, avoid excessive leverage, and tailor strategies to individual risk tolerance.

Overall Outlook

Currently, AUD/USD is in a phase of technical consolidation amid fundamental debates. Short-term strategies should focus on range trading (0.6370-0.6450), waiting for breakout signals before following the trend. The medium to long-term direction depends on signals from Fed policy shifts and whether global trade risks ease.

Key indicators include: US employment data and GDP growth, Australian CPI and RBA policy moves, China’s economic data, and global commodity prices. If this week’s data reinforce rate cut expectations, consider building long positions; otherwise, remain cautious of dollar rebounds. Traders should closely monitor market sentiment before and after data releases and adjust their strategies accordingly.