The underlying logic behind the Australian dollar's continued pressure: From the commodity currency dilemma to exchange rate outlook analysis

Why Is the Australian Dollar Struggling to Shake Off Weakness?

Globally, the Australian dollar is one of the top five most traded currencies, and its currency pair with the US dollar ranks highly in the international forex market. This status stems from the AUD’s excellent liquidity features and relatively low transaction costs, providing participants with efficient opportunities for short-term trading and medium-term positioning.

However, the AUD is not an ordinary currency. As a typical commodity currency, Australia’s economy is highly dependent on exports of raw materials such as iron ore, coal, and copper. This makes the exchange rate highly sensitive to fluctuations in global commodity prices, leading to significant swings. Additionally, due to its relatively high interest rates, the AUD has long been viewed by the market as a target for arbitrage trading and hot money chasing.

But this halo is gradually fading. Over the past decade, the AUD has remained weak—falling more than 35% from the 1.05 level in early 2013, while the US dollar index rose by 28.35% during the same period. This is not just an Australian phenomenon; the euro, Japanese yen, and Canadian dollar have also depreciated against the US dollar, reflecting the broader global trend of cyclical US dollar strength. Whether from technical charts or fundamental news, the AUD remains relatively disadvantaged, which explains why it struggles to stabilize at higher levels after short-term rebounds.

Entering Q4 2024, the AUD/USD experienced a sharp decline, with a full-year drop of about 9.2%. By 2025, amid worsening global trade conditions and recession fears, the AUD/USD briefly fell to 0.5933, hitting a five-year low. Analysts point out that expanding US tariffs, shrinking raw material exports, the irreversible divergence in Australian-US interest rates, and domestic economic weakness have collectively driven ongoing capital outflows, further depressing the AUD valuation.

Rebound Signals and Outlook Predictions

In 2025, the AUD showed signs of a turnaround. After a panic-like drop in April due to tariff concerns, the AUD/USD gradually entered a slow appreciation phase. By September, buoyed by soaring iron ore and gold prices and market expectations of Fed rate cuts, the AUD surged, reaching 0.6636 on September 10, breaking above the high since November 2024. Over the past two months, although the AUD/USD has retreated slightly, it has remained above 0.64.

Whether the AUD can truly rebound depends on three core factors:

Australia’s Domestic Economy and Central Bank Stance — In Q3 2025, Australian consumer prices rose by 1.3% month-on-month, surpassing the previous quarter’s 0.7% and exceeding market expectations. The Reserve Bank of Australia emphasized that inflation pressures in housing and services are much higher than expected, indicating that only when inflation enters a sustainable downward trajectory will policy easing be considered. This suggests that expectations for rate cuts have cooled significantly, and a policy tightening reversal often provides short-term support for the AUD.

The Decisive Role of US Dollar Strength — The Federal Reserve completed its second 50 basis point rate cut in October, but Powell’s subsequent comments dispelled market hopes for further cuts in December. The US dollar index, after bottoming near 96 this summer, has shown resilience, rebounding about 3%, with increasing chances of breaking above the 100 psychological level. Historical patterns indicate that a strong dollar often correlates with a weak AUD.

China’s Economic Recovery as a Driving Force — Australia’s resource exports are highly dependent on the Chinese market. The strength or weakness of China’s economy directly influences demand for key raw materials like iron ore, coal, and natural gas, thereby affecting the fundamental support for the AUD. When China performs strongly, resource exports and prices rise, boosting market confidence in Australian assets; conversely, concerns about long-term demand can weaken the AUD.

The Three Drivers of AUD/CNY

The exchange rate relationship between the AUD and the Chinese yuan reflects the trade ties and economic interactions between Australia and China.

Trade policy stability is crucial. If China-Australia trade relations remain stable, it will positively support the AUD/CNY. The RMB exchange rate is heavily influenced by Chinese central bank policies and US-China relations, and its trend will be a key driver for AUD/CNY.

Monitoring the RMB’s own trajectory is essential. Although Chinese economic data show some signs of weakness (e.g., manufacturing PMI falling in October), progress in US-China negotiations and US tariff reductions could ease RMB depreciation pressures, thereby supporting the AUD/CNY’s relative performance.

Australia’s domestic economic performance and RBA policy adjustments determine the strength of the AUD itself. Since RMB fluctuations are relatively moderate, the AUD/CNY typically declines less than the AUD/USD. Over the next 1-3 months, given the expectation of RMB stability, the AUD/CNY may fluctuate within 4.6-4.75. If the RMB weakens due to domestic or external pressures, the AUD/CNY could briefly approach 4.8.

Divergent Views from Major Institutions

Regarding the AUD’s outlook at year-end, opinions vary among institutions. Morgan Stanley is optimistic, expecting the AUD to rise to 0.72 by year-end, based on the RBA’s potential hawkish stance and commodity price support. UBS is more cautious, acknowledging resilience in Australia’s economy but considering global trade uncertainties and Fed policy shifts, projecting the AUD to stay around 0.68. The economists at the Commonwealth Bank of Australia offer a more conservative forecast, suggesting the AUD rebound may be short-lived, with a peak expected in March 2026, but possibly falling again by year-end as US economic growth is projected to outpace other major economies, leading to a stronger dollar.

Short-term Trading and Medium-term Positioning Strategies

1-3 Days Ultra-Short-Term Approach:

Long positions are triggered when the price stabilizes above 0.6450 resistance, targeting the 200-day moving average at 0.6464 and the psychological 0.6500 level. Catalysts include weaker-than-expected US GDP or non-farm payroll data (implying increased rate cut chances), or better-than-expected Australian CPI. Stop-loss should be set below 0.6420.

Short positions are initiated when the price breaks below support at 0.6373, targeting 0.6336 or even 0.6300. Triggers include strong US data or a significant cooling of Australian CPI, with stops above 0.6400.

Before major data releases, it’s advisable to stay on the sidelines, reduce positions, or temporarily exit to manage volatility.

1-3 Weeks Medium-term Outlook:

Bullish scenarios require a rise in Fed rate cut expectations, softening employment and inflation, easing trade tensions, with targets around 0.6550-0.6600; or a technical breakout above the 200-day moving average confirming a reversal, prompting additional long positions. Risks include a resurgence of Australian inflation, unexpected US dollar weakness, or geopolitical events.

Bearish scenarios depend on unexpectedly strong US economic data, stellar non-farm payrolls delaying Fed rate cuts, worsening trade tensions, or weak Chinese economic data, with targets near 0.6250.

Long-term, if bullish on the AUD, consider gradually building positions on dips, using time to smooth out market volatility, especially after confirming an upward trend.

Risks and Investment Tips

The AUD exchange rate exhibits significant volatility, creating opportunities for profit through forex margin trading. Investors can flexibly employ long and short strategies and leverage tools (typically 1-200x) to capture bullish and bearish opportunities. The trading entry barrier is relatively low, suitable for small and medium-sized investors.

However, it must be emphasized that forex trading is high-risk investment. Participants face the possibility of losing their entire principal. All investment decisions should be based on thorough market research and risk assessment. Traders need to closely monitor market sentiment before and after economic data releases, adjusting strategies flexibly to achieve more stable investment performance amid AUD fluctuations.

Currently, the AUD/USD is in a phase of technical consolidation and fundamental tension. Short-term trading should focus on the 0.6370-0.6450 range, with breakout follow-up. The medium- to long-term outlook depends on signals of Fed policy shifts and whether global trade conditions substantially ease. If this week’s data reinforce rate cut expectations, it may be suitable to position for longs; otherwise, caution is advised regarding USD rebound pressures. Investors should continuously monitor policy developments, economic data, and market sentiment, balancing risks and rewards dynamically.