Will the Australian dollar rebound? An in-depth analysis of the recovery prospects after a decade of weakness

Will the Australian dollar rebound? This question troubles many forex investors. As the fifth most traded currency globally (after USD, EUR, JPY, and GBP), AUD/USD used to be a favorite among active traders. But over the past decade, the AUD has consistently underperformed, even a brief rebound to 0.6636 in 2025 hasn’t changed its long-term depreciation trend. To answer “Will the AUD bounce back?” we must first understand why it’s been so difficult.

As a high-yield currency, the AUD has traditionally attracted arbitrage capital flows. However, when the interest rate advantage diminishes and commodity demand weakens, the AUD faces a “rebound but no trend” dilemma. This article will analyze its historical performance, influencing factors, and future outlook to assess the real possibility of a recovery.

A Decade of Decline: How Commodity Currencies Fell into a Long-Term Dilemma

Looking back to early 2013 at 1.05, the AUD has depreciated over 35% against the USD in the past ten years, while the USD Index (DXY) rose by 28.35%. This isn’t just an AUD issue—EUR, JPY, and CAD also weakened against the dollar, highlighting a broader phenomenon: the dominance of a strong USD cycle.

The long-term weakness of the AUD isn’t sudden but structural. The following table clearly shows the AUD’s performance during different periods and the background factors:

The fundamental reasons for AUD weakness include: first, US tariff policies impacting global trade, putting pressure on Australia’s metal and energy exports, directly weakening its commodity currency status. Second, the difficulty in reversing the interest rate advantage—despite the RBA maintaining relatively high rates, structural USD strength remains unchallenged. Third, Australia’s domestic economy lacks growth momentum, making assets less attractive and reducing foreign capital inflows.

Every time the AUD approaches previous highs, selling pressure increases, indicating investor confidence remains limited. This reflects a core dilemma: the AUD’s rebounds are often fleeting and fail to develop into sustained upward trends.

Will the AUD bounce back? Three key variables determine its future direction

To judge whether the AUD will recover, focus must be placed on three interconnected factors. Their interaction will decide if the AUD can break out into a genuine medium- to long-term bull trend.

Key Variable 1: Can the RBA restore interest rate advantage?

The AUD is viewed as a high-yield currency, heavily reliant on interest rate differentials. Currently, the RBA’s cash rate is around 3.60%, with market expectations of possible rate hikes again by 2026. The Commonwealth Bank (CBA) forecasts a peak around 3.85%.

If inflation remains sticky and employment stays resilient, a hawkish stance from the RBA could help rebuild the AUD’s interest rate advantage over the USD. This directly supports the question of whether the AUD will bounce back. Conversely, if rate hike expectations fade, the AUD will lose its main support and could weaken further in the short term.

Key Variable 2: China’s economy as the external engine for the AUD

Australia’s export structure is heavily concentrated in iron ore, coal, and energy, making the AUD a typical commodity currency. China’s demand fluctuations are the most direct external influence.

When China’s infrastructure and manufacturing activity rebound, iron ore prices tend to rise, and the AUD usually reflects this quickly. But if China’s recovery falters, even short-term commodity rebounds may lead to “spikes and drops” in the AUD—explaining why a sustained rally remains uncertain.

The economic data of China in 2026 will be a key indicator of whether the AUD can break through.

Key Variable 3: The US dollar trend and global risk sentiment

From a capital flow perspective, the Fed’s policy cycle remains the core driver of global FX markets. In a rate-cut environment, the USD typically weakens, benefiting risk currencies like the AUD. But if risk aversion rises and capital flows back into the USD, the AUD can weaken even if fundamentals are stable.

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

Summary: For the AUD to enter a genuine medium- to long-term bull phase, three conditions must align: the RBA maintains a hawkish stance, China’s demand substantially improves, and the USD enters a structural weakening phase. If only one or two of these are present, the AUD is more likely to stay in a range rather than trend upward.

Institutional forecasts: Can the AUD break key resistance?

Regarding whether the AUD will bounce back, different institutions have varying views, reflecting market uncertainty.

Morgan Stanley’s optimistic forecast: expects AUD/USD to reach 0.72 by late 2025, based on the RBA’s hawkish stance and rising commodity prices providing support.

Traders Union model’s moderate outlook: projects an average of about 0.6875 (range 0.6738–0.7012) by late 2026, rising further to 0.725 by 2027, driven by strong labor markets and commodity demand recovery. The common assumption is that if the US economy soft-lands and the USD index declines, commodity currencies like the AUD will benefit.

UBS’s cautious stance: suggests that despite Australia’s economic resilience, global trade uncertainties and potential Fed policy shifts could limit gains. They forecast around 0.68 by year-end, implying limited upside.

CBA economists’ cautious view: recent reports suggest the AUD’s recovery may be short-lived, expecting a peak around March 2026, with a possible decline by year’s end.

Wall Street analysts’ warning: if the US avoids recession but the USD remains super-strong due to interest rate differentials, the AUD will struggle to break 0.67.

In summary, the answer to “Will the AUD bounce back?” is: short-term recovery is possible, but a sustained bullish trend requires clearer macro conditions. By early 2026, the AUD may oscillate between 0.68 and 0.70, influenced by Chinese data and US employment reports. It is unlikely to crash sharply (given Australia’s solid fundamentals and RBA’s hawkish stance), but also unlikely to surge to historic highs (due to persistent structural USD strength).

Short-term rebound opportunities for the AUD

For traders asking “Will the AUD bounce back?” a practical answer is: there is potential, but timing is key.

The AUD’s advantage lies in its high liquidity and low spreads among the top five traded currencies, making it suitable for short-term trading and medium-long-term positioning. Recent rebounds in commodity prices and hawkish signals from the RBA provide a phase of upward momentum.

However, global economic uncertainties and USD rebound risks remain. To participate in a potential AUD rally, investors should:

• Set clear entry and stop-loss levels
• Monitor Chinese economic data and Fed policy moves closely
• Use forex margin trading flexibly to capitalize on both sides
• Remember that forex trading involves high risk and potential loss of capital

Realistic outlook for AUD recovery

Will the AUD bounce back? The answer is both simple and complex. The simple part: if the three key conditions improve simultaneously, the AUD has a basis for rebound. The complex part: these conditions rarely align perfectly.

As a commodity-exporting “commodity currency,” the AUD’s performance remains highly linked to prices of copper, iron ore, coal, and other raw materials. This dual nature is both an advantage (during commodity booms) and a disadvantage (during downturns).

Looking to 2026, the medium-term outlook suggests the AUD may stay within 0.68–0.72 due to RBA support and commodity price recovery. But a true trend reversal depends on a more substantial shift in the global economic landscape—namely, USD depreciation, China’s demand revival, and a renewed appetite for risk assets.

While FX markets are volatile and difficult to predict precisely, the AUD’s high liquidity, strong cyclical patterns, and clear economic structure make medium- to long-term trend assessments more manageable. For those wondering “Will the AUD bounce back?” the most pragmatic approach is range trading, closely watching the three core variables, and being ready to shift quickly when conditions favor a trend. The short-term rebound has already begun; a long-term reversal still awaits further confirmation.