## Will the AUD continue its long-term pressure and appreciation? A comprehensive analysis of the 2026 exchange rate trend

The Australian dollar (AUD/USD) ranks among the top five most actively traded currencies globally and is an important exchange rate indicator followed by many investors. However, when looking at a longer time horizon, the overall performance of the AUD over the past decade has not been ideal. From an initial level of 1.05 in early 2013 to the end of 2023, the AUD has depreciated by over 35%, while the US dollar index has risen by 28.35% during the same period, reflecting a long-term strong dollar cycle.

Interestingly, anomalies appeared during the COVID-19 pandemic in 2020. At that time, Australia's pandemic control was relatively stable, demand for bulk commodities like iron ore in Asian markets was strong, and the Reserve Bank of Australia (RBA) adopted policies that pushed the AUD/USD exchange rate up by about 38% within a year. But this was short-lived. Since 2021, the AUD has mostly been in consolidation or weakening phases.

By 2025, the situation began to change. Iron ore and gold prices surged significantly, and the US Federal Reserve's rate cuts drove capital flows into risk assets, lifting the AUD exchange rate. The AUD/USD once rose to 0.6636, appreciating about 5-7% over the year. However, from a longer-term perspective, the fundamentals of the AUD remain fragile.

## Why does the AUD repeatedly struggle to appreciate? An in-depth analysis of three major obstacles

Despite rising commodity prices and a weakening US dollar, the AUD remains generally weak. There are three core reasons:

**First, the diminishing interest rate advantage.** The AUD was once considered a high-yield currency attracting hot money inflows. But as global central banks end their rate hike cycles, the interest rate differential between the Reserve Bank of Australia (RBA) and the Federal Reserve has narrowed, weakening the traditional support for the AUD.

**Second, the sluggish recovery of China's economy.** Australia's export structure is highly dependent on raw materials like iron ore and coal, and China's demand directly determines the AUD's fate. Between 2023 and 2024, China's economic growth slowed, oscillating within a high-level range, resulting in a lack of sustained upward momentum for the AUD.

**Third, the impact of US tariff policies on global trade.** Declines in raw material exports hurt Australia's commodity currency status. Coupled with weak domestic economic conditions, the attractiveness of Australian assets is relatively low. Therefore, whenever the AUD approaches previous highs, market selling pressure increases significantly, and investor confidence is severely tested.

## Three key indicators to monitor for AUD appreciation

To assess whether the AUD will truly appreciate in the future, three decisive factors should be watched:

**1. RBA interest rate policy direction**

The current cash rate in Australia is about 3.60%. Market expectations suggest a possible rate hike again by 2026, with the Commonwealth Bank of Australia forecasting a peak of around 3.85%. If inflation remains sticky and the employment market stays resilient, a hawkish stance from the RBA will help rebuild the AUD's interest rate advantage. Conversely, if rate hike expectations falter, the AUD's support will weaken significantly.

**2. China's economic and commodity price trends**

The AUD is essentially a commodity currency, closely linked to iron ore and coal prices. When China's infrastructure and manufacturing activities rebound, iron ore prices tend to strengthen, and the AUD quickly reflects this in the exchange rate. However, if China's recovery lacks momentum, even short-term commodity rebounds may lead to a "spike and fall" pattern for the AUD, making sustained appreciation difficult.

**3. US dollar trend and global risk sentiment**

The Fed's policy cycle remains a key driver in the global forex market. In a rate-cut environment, a weaker dollar generally benefits risk currencies like the AUD; but if risk aversion rises and capital flows back into the dollar, the AUD can come under pressure even if fundamentals are stable.

## 2026 AUD appreciation outlook: institutional forecasts comparison

Market opinions on the AUD's future are divided.

**Optimists, like Morgan Stanley, believe** that by the end of 2025, the AUD/USD could rise to 0.72. This outlook is based on the RBA maintaining a hawkish stance and strong 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.

**Pessimists adopt a cautious stance.** UBS suggests that uncertainties in global trade and changes in Fed policies could limit the AUD's gains, with the exchange rate remaining around 0.68 by year-end. The Reserve Bank of Australia economists warn that the AUD's appreciation might be temporary, predicting a peak around March 2026, followed by a possible decline by year's end.

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 resistance at 0.67.

**From a personal perspective**, the AUD in the first half of 2026 is likely to fluctuate between 0.68 and 0.70. The main upward pressure will come from China's data volatility, but Australia's solid fundamentals and the relatively hawkish stance of the RBA suggest the AUD won't experience a sharp decline. Meanwhile, structural US dollar advantages remain, preventing the AUD from soaring to 1.0. The long-term bullish outlook is supported by resource exports and the commodity cycle recovery.

## Practical ways to invest in AUD appreciation

Investors interested in participating in the AUD appreciation trend have multiple options. As one of the most traded currency pairs globally, AUD/USD offers high liquidity and predictable volatility, making analysis relatively straightforward.

Traditional spot forex trading suits long-term holders, but for more efficient operations, forex margin trading provides flexible long and short positions. With appropriate leverage, investors can profit from bullish moves or seek opportunities during adjustments. However, it is important to remember that all investments carry risks; forex trading is high-risk, and investors should be prepared for potential losses.

## Summary of AUD appreciation prospects

As a commodity currency, the AUD is highly correlated with iron ore, coal, and other raw material prices. To determine whether the AUD is truly appreciating and can sustain a bullish 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.

In the short term, the combination of the RBA maintaining a hawkish stance and strong commodity prices will provide support. But in the medium to long term, global economic uncertainties and potential US dollar rebounds could limit the AUD's gains, leading to more volatile movements.

Although forex markets are volatile and difficult to predict precisely, the AUD's high liquidity, predictable volatility, and distinct economic structure make medium- and long-term trend judgments relatively easier. Investors aiming to participate should focus on the interaction between RBA policies, Chinese economic data, and global risk sentiment.