Australian Dollar Trend Forecast — Can Commodity Currencies Reverse a Decade of Slump?

As the fifth-largest reserve currency by global trading volume, the Australian dollar (AUD) was once considered a “high-yield currency” favored by investors. However, over the long term, the AUD has remained relatively weak over the past decade, reflecting dual pressures from commodity cycle downturns and diminishing interest rate differentials. So, what is the forecast for the AUD? Can this once-shining high-yield currency regain its shine?

Why Has the AUD Been Under Long-Term Pressure? The Dual Challenges of Interest Rate Differentials and Commodity Demand

The AUD/USD ranks among the top five in the global forex market, known for high liquidity and low spreads, making it a favorite for arbitrage traders. But to understand why the AUD has performed poorly over the past ten years, we need to look at some key data:

Starting from early 2013 at around 1.05, the AUD has depreciated over 35% against the USD in the past decade. During the same period, the US Dollar Index (DXY) rose by 28.35%, while the euro, yen, and Canadian dollar also depreciated against the dollar. This isn’t an issue unique to the AUD but part of a broader strong dollar cycle.

A closer look reveals three layers of difficulty for the AUD:

First, commodity cycle recession. Australia’s export structure is heavily concentrated in iron ore, coal, and energy, making the AUD essentially a “commodity currency” that follows commodity prices. During China’s robust recovery from 2009-2011, the AUD rose to near 1.05; during the global commodities boom from 2020-2022, iron ore prices hit record highs, and the AUD briefly broke above 0.80. But since 2023, China’s economic recovery has been weak, raw material demand has declined, and the AUD has oscillated lower accordingly.

Second, the narrowing of interest rate differentials. The Reserve Bank of Australia (RBA) currently has a cash rate of about 3.60%, once providing a clear advantage over US rates. However, with the Federal Reserve maintaining high rates and market expectations of another rate hike by the end of 2026, the interest rate gap between Australia and the US is shrinking, reducing the appeal for capital seeking yield differentials.

Third, US trade policy impacts. US tariffs and trade policies have affected global trade flows, leading to declines in exports of metals and energy, directly undermining the AUD’s status as a commodity currency. Meanwhile, Australia’s domestic economic growth remains sluggish, and asset attractiveness is relatively low.

Performance comparison: Background and trends of AUD/USD during different periods

Every time the AUD approaches previous highs, market selling pressure increases, reflecting limited confidence in the currency. Without clear growth momentum or interest rate advantages, the AUD’s movement is more influenced by external factors than by its fundamentals.

Three Key Drivers for AUD Rebound

Forecasting the AUD’s future isn’t driven by a single factor. To determine whether the AUD can reverse its weakness, investors need to monitor the interaction of three core variables:

1. RBA Monetary Policy: Can the interest differential be restored?

The AUD has long been viewed as a high-yield currency, with its attractiveness heavily dependent on the interest rate spread with the USD. The Commonwealth Bank of Australia (CBA) forecasts the RBA’s peak rate could reach 3.85%.

If inflation remains sticky and the labor market stays resilient, a hawkish stance from the RBA could help rebuild the interest differential, attracting arbitrage capital back into the AUD. Conversely, if rate hike expectations falter, the currency’s support will weaken.

2. China’s economy and commodity prices: The “external engine” for the AUD

Australia’s exports are highly dependent on China, with iron ore being the most critical commodity. When China’s infrastructure and manufacturing activity pick up, iron ore prices tend to rise, and the AUD often reflects this quickly in the exchange rate. Conversely, if China’s recovery remains tepid, even short-term commodity rebounds may lead to “spikes and retracements” in the AUD.

Monitoring China’s monthly manufacturing PMI, infrastructure investment, and other economic indicators is crucial for predicting AUD movements.

3. US dollar trends and global risk sentiment

From a capital flow perspective, the Federal Reserve’s policy cycle remains a key driver of global forex markets. In a rate-cutting environment, a weaker USD generally benefits risk currencies like the AUD. However, if risk aversion rises and capital flows into safe-haven assets, the AUD can come under pressure even if its fundamentals are stable.

For the AUD to achieve a genuine medium- to long-term bull trend, all three conditions must align:

• The RBA maintains or adopts a hawkish stance
• China’s economic demand improves substantially
• The USD enters a structural weakening phase

If only one or two of these conditions are met, the AUD is more likely to remain range-bound rather than trend higher.

2026–2027 AUD Outlook: How do major institutions view it?

The core question in AUD forecasts is whether the rebound can turn into a sustained trend. Different financial institutions have diverging views:

Optimistic outlook — potential for appreciation

Morgan Stanley projects the AUD/USD could rise to 0.72 by 2026, supported by the RBA’s hawkish stance and strengthening commodities.

The Traders Union’s statistical model estimates an average of about 0.6875 for the end of 2026 (range 0.6738–0.7012), with a further rise to 0.725 by the end of 2027. They emphasize that a strong Australian labor market and a recovery in commodity demand would underpin this outlook.

These optimistic forecasts share the premise that if the US economy achieves a soft landing and the dollar index declines, the AUD and other commodity currencies will benefit.

Cautious outlook — limited upside

UBS takes a more conservative view, noting that despite resilience in Australia’s economy, global trade uncertainties and potential Fed policy shifts could limit gains, with forecasts around 0.68 by year-end.

The Australian Commonwealth Bank’s economists suggest that the rebound may be only a short-term correction, expecting the AUD/USD to peak around March 2026 and then decline again by year-end.

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

Market consensus and personal observations

Overall, most forecasts suggest the AUD will likely oscillate between 0.68 and 0.70 in the first half of 2026, influenced by Chinese economic data and US employment reports. The currency probably won’t crash but also won’t surge to 1.0, given the structural strength of the dollar.

Short-term pressures mainly stem from uncertainties in Chinese data, while long-term positives include Australia’s resource exports and potential commodity cycle recovery.

Practical Guide to Trading the AUD

The AUD/USD is among the top five most traded forex pairs worldwide. Although predicting exact exchange rate movements is challenging, the AUD’s characteristics—high liquidity, volatility patterns, and economic structure—make it relatively easier to analyze medium-term trends.

Investors can participate via forex margin trading, which offers advantages such as:

• Two-way trading: profit from both rising and falling markets
• Leverage flexibility: from 1x up to 200x, suitable for small to medium investors
• Lower barriers: compared to stocks or futures, requiring less capital
• High liquidity: large trading volume ensures quick execution

Note: Forex trading involves high risk; investors can lose all invested capital. All investment decisions should be made after thorough risk assessment and considering personal financial situations.

AUD Outlook: Is the Rebound a Recovery or a Trend Shift?

The AUD’s commodity currency nature remains prominent, closely linked to iron ore, copper, coal, and other raw materials. The key to its future lies in whether the commodity cycle truly reactivates and whether the USD enters a long-term weakening phase.

Short-term factors support a modest rebound:

• RBA’s hawkish stance providing interest rate support
• Raw material prices remaining relatively strong
• The USD being temporarily weighed down by rate cut expectations

Long-term challenges persist:

• Uncertain global economic growth outlook
• The possibility of the USD rebounding (if inflation persists or Fed shifts policy)
• The strength of China’s recovery remains to be confirmed

Overall, the AUD’s trajectory appears to be a “rebound but with limitations.” Investors should monitor monthly Chinese economic data, Australian employment reports, and US CPI and Fed meetings, as these are key triggers influencing the AUD.

While forex markets are volatile and rates difficult to predict precisely, the AUD’s high liquidity, cyclical volatility, and clear economic structure make medium- to long-term trend analysis more manageable. Tracking the interaction of these three main drivers will help better understand the currency’s future path.