Is the Australian dollar's trend continuing to be weak? Is there a rebound opportunity in the future? 2026 Exchange Rate Forecast and Key Observations

The Australian dollar ranks fifth in global forex market activity (only behind the USD, EUR, JPY, and GBP), and its movement is closely watched. The AUD/USD currency pair not only boasts ample liquidity and low transaction spreads but also attracts a large number of short-term traders and long-term investors.

Interestingly, despite being regarded as a high-yield currency and a common choice for carry trades over the long term, the overall performance of the AUD over the past decade has been relatively weak, with only occasional significant rebounds. An exception was during the 2020 pandemic—thanks to Australia’s relatively stable pandemic response, strong demand for raw materials like iron ore in Asia, and supportive policies from the Reserve Bank of Australia (RBA), the AUD/USD surged approximately 38% within a year. However, most of the time afterward, the AUD remained in consolidation or weakening phases.

Entering the second half of 2025, with rising iron ore and gold prices and the Federal Reserve entering a rate-cutting cycle, the AUD/USD rose to around 0.6636, gaining approximately 5-7% for the year. Nonetheless, from a longer-term perspective, the AUD’s overall trend remains relatively weak.

Over 30% Depreciation in Ten Years—Why Is the AUD Struggling to Break Through Its Weakness?

Since early 2013 at around 1.05, the AUD has depreciated over 35% against the USD in the past decade, while the US dollar index has risen by 28.35%. Comparing with other major currencies like the euro, yen, and Canadian dollar, which also depreciated against the USD, indicates this is part of a broader strong dollar cycle globally.

The predicament of the AUD is multi-faceted: technical trends remain under pressure, fundamentals lack strong support, making rebounds difficult to sustain at high levels. Every time the AUD approaches previous highs, selling pressure increases significantly, reflecting market caution about the outlook.

Analysts generally agree that the main reasons for the AUD’s weakness include:

• US tariff policies disrupting global trade patterns, slowing raw material exports (metals, energy), weakening the commodity currency nature of the AUD
• Diminishing interest rate advantage as Australia’s domestic economic growth remains sluggish, reducing asset attractiveness
• Lack of clear growth drivers, with the AUD often showing “rebound but no clear trend” characteristics

From a medium- to long-term view, the AUD’s movement is heavily influenced by external factors, with limited internal fundamental drivers. This is a core reason for the market’s continued cautious stance.

Three Key Factors That Will Determine the AUD’s Future Direction

To assess whether the AUD has sustained upward potential, investors should focus on the following three variables:

1. RBA’s monetary policy

The AUD has long been considered a high-yield currency, with its attractiveness largely dependent on the interest rate differential. Currently, the RBA cash rate is about 3.60%, with market expectations gradually shifting toward “possible rate hikes again in 2026,” and the Reserve Bank of Australia (RBA) projecting a peak rate of around 3.85%.

If inflation remains sticky and the labor market stays resilient, maintaining a hawkish stance could help the AUD rebuild its interest rate advantage. Conversely, if rate hike expectations fade, the AUD’s support will weaken significantly.

2. China’s economic performance and commodity prices

Australia’s export structure is highly concentrated in iron ore, coal, and energy, making the AUD essentially a typical commodity currency. Changes in China’s demand are the most critical external variable.

When China’s infrastructure and manufacturing activity pick up, iron ore prices tend to rise in tandem, often leading to a quick appreciation of the AUD. Conversely, if China’s recovery falters, even short-term rebounds in commodities may be followed by declines in the AUD.

3. USD trend and global risk appetite

From a capital flow perspective, the Federal Reserve’s policy cycle remains central to the global FX market. In a rate-cutting environment, a weaker USD generally benefits risk-sensitive currencies, including the AUD. However, if risk aversion increases and capital flows back into the USD, the AUD may weaken even if its fundamentals are stable.

Recently, market sentiment has slightly improved, but energy prices and global demand remain subdued. Investors tend to favor safe-haven assets over cyclical currencies like the AUD, limiting its upside potential.

For the AUD to break into a genuine medium- to long-term bull trend, all three conditions must be met simultaneously: the RBA shifts back to a hawkish stance, China’s demand substantially improves, and the USD enters a structural weakening phase. If only one of these factors materializes, the AUD is more likely to remain in a range-bound oscillation.

Major Institutions’ Forecasts for the AUD Beyond 2026

Market analysts are divided on the AUD’s outlook:

Optimistic views

Morgan Stanley expects the AUD/USD to rise to around 0.72 by the end of 2025, supported by the RBA maintaining a hawkish stance and strong commodity prices.

The Traders Union model projects an average of 0.6875 by the end of 2026 (range 0.6738–0.7012), rising further to 0.725 by the end of 2027, emphasizing the support from a robust Australian labor market and commodity demand recovery.

Neutral to cautious views

UBS notes that despite Australia’s resilient economy, uncertainties in global trade and potential changes in Fed policy could limit gains, with the exchange rate expected to stay around 0.68 by year-end.

The Australian Federal Bank’s economic team offers a more cautious outlook, suggesting the AUD’s recovery may be temporary. They forecast the AUD/USD reaching a high in March 2026 but possibly retreating again by year-end.

Some Wall Street analysts warn that if the US avoids recession but the USD remains super-strong due to interest rate differentials, the AUD will struggle to break through 0.67.

Market consensus and practical approach

Overall, in the first half of 2026, the AUD is likely to oscillate between 0.68 and 0.70, with significant fluctuations driven by Chinese economic data and US non-farm payroll reports. Fundamentally, Australia’s economy remains relatively resilient, and the RBA’s hawkish stance supports the currency, making a sharp decline unlikely. However, structural USD strength persists, preventing a quick move to parity.

In the short term, risks to the AUD include soft Chinese data, while long-term positives stem from Australia’s resource export resilience and potential commodity cycle recovery.

Investment Logic Summary for the AUD

As a typical commodity currency, the AUD is highly correlated with prices of copper, iron ore, coal, and other raw materials. In the short term, a hawkish RBA and strong raw material prices will support the AUD.

However, in the medium to long term, increased global economic uncertainties and the risk of a USD rebound could limit the AUD’s upside, leading to more volatility.

Although forex markets are volatile and predicting exchange rates precisely is challenging, the AUD’s trend benefits from high liquidity and relatively predictable volatility patterns. Its economic structure makes medium- to long-term trend analysis more manageable. Traders can develop strategies based on changes in RBA policies, Chinese economic data, and the USD cycle, rather than chasing short-term fluctuations.