Will the Australian dollar's historic lows be difficult to reverse? Analyzing commodity cycles and the strength of the US dollar to predict AUD's trend in 2026

The Australian dollar has been under a structural downtrend for over a decade, now approaching historic lows. This is not a temporary correction but reflects a prolonged struggle of deep economic forces. Once the fifth-largest currency by global trading volume, why is AUD/USD in trouble, and is there really a chance for a rebound?

The AUD is often seen as a commodity currency, closely linked to iron ore, coal, gold, and other bulk commodities. However, in recent years, its performance against the US dollar has been disappointing. Starting from around 1.05 in early 2013, the AUD has depreciated over 35% in the past decade, while the US dollar index has risen by 28.35%. Meanwhile, the euro, yen, and Canadian dollar against the dollar have also underperformed, indicating that the problem is not with the AUD itself but with a global “strong dollar cycle” that has persisted for many years.

Why has the AUD fallen to historic lows—deep economic tug-of-war

The formation of the AUD’s historic lows results from multiple forces acting simultaneously.

First is the commodity cycle downturn. Australia’s economy is highly dependent on raw material exports, with China once its largest buyer. During China’s strong recovery from 2009 to 2011, the AUD/USD approached 1.05; but as China’s growth slowed and demand for commodities weakened, the AUD lost vital support. In 2023–2024, despite some rebound in commodity prices, the AUD failed to rally and continued to hover near lows.

Second is the diminishing interest rate advantage. The AUD used to attract arbitrage traders due to relatively high rates. But as the Reserve Bank of Australia (RBA)’s monetary policy space became constrained, the US dollar’s rate advantage widened. When the Federal Reserve maintained relatively high rates, capital naturally flowed into dollar assets, reducing the AUD’s appeal.

Third is US tariffs and protectionism impacting global trade. As an export-oriented economy, Australia is highly sensitive to global trade conditions. When the US imposed high tariffs, prospects for raw material exports dimmed, putting pressure on the AUD. Meanwhile, risk aversion increased demand for the dollar, further strengthening it.

Commodity price rebounds can’t save the AUD—why do rebounds always turn out to be false alarms?

Interestingly, the AUD has recently shown some opportunities. In late 2025, iron ore and gold prices surged significantly, and signals from the Fed indicated possible rate cuts, pushing AUD/USD briefly to 0.6636. At first glance, it seemed the AUD might break free from its lows. However, by early 2026, the rally lost momentum again.

Why does the AUD always “spike and then fall back”?

The key reason is that market confidence in the AUD remains limited. Every time the AUD approaches previous highs, selling pressure increases. This reflects deep-seated concerns about Australia’s economic outlook: the interest rate differential with the US remains hard to improve fundamentally, Australia’s domestic growth momentum is weak, and asset attractiveness is relatively low.

At the same time, uncertainty over China’s economic recovery remains a major risk. Australia’s iron ore and coal exports depend heavily on Chinese industrial demand. If China’s infrastructure and manufacturing activity cannot sustain growth, even short-term commodity rebounds are likely to be fleeting. This explains why the AUD struggles to stabilize at higher levels during commodity rallies.

Three key variables to watch for the AUD’s future trajectory

To determine when the AUD might truly break free from its long-term lows, investors should focus on three core drivers:

RBA interest rate policy—first step for the AUD to rebound from historic lows

The monetary stance of the Reserve Bank of Australia (RBA) is crucial. Currently, the cash rate is around 3.60%. Markets are beginning to price in the possibility of further rate hikes in 2026, with Commonwealth Bank of Australia (CBA) even forecasting a peak around 3.85%.

If inflation remains sticky and the labor market stays resilient, a hawkish RBA stance could help rebuild the AUD’s interest rate advantage. Conversely, if rate hikes fall short, the AUD’s support will weaken significantly. This is the most controllable factor and a necessary condition for a structural reversal.

China’s economy and commodity cycle: the key to the AUD’s fate

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

When China’s infrastructure and manufacturing activity pick up, iron ore prices tend to strengthen, and the AUD often reflects this rally. But if China’s recovery falters, even short-term commodity rebounds may prove to be false alarms. Therefore, China’s actual economic performance in 2026 will directly influence whether the AUD can escape its long-term weakness.

US dollar and global risk sentiment—short-term volatility drivers

From a capital flow perspective, the US Federal Reserve’s policy cycle remains the core of global FX markets. In a rate-cut environment, a weaker dollar generally benefits risk currencies like the AUD; but if risk aversion rises and funds flow back into the dollar, the AUD can weaken even if fundamentals are stable.

Recent market sentiment has improved somewhat, but global energy prices and demand outlook remain cautious. Investors tend to favor safe-haven assets over cyclical currencies, which limits the AUD’s upside.

Will the AUD escape its lows in 2026? Predictions and market consensus

Market forecasts for the AUD’s future diverge significantly.

Morgan Stanley projects AUD/USD could rise to around 0.72, assuming the RBA remains hawkish and commodities stay strong. Traders Union’s models suggest an average of about 0.6875 by the end of 2026 (range 0.6738–0.7012), supported by Australia’s resilient labor market and commodity demand recovery.

UBS adopts a more cautious view, noting that despite solid domestic fundamentals, global trade uncertainties and Fed policy shifts could cap gains, with a forecast near 0.68 by year-end. The Australian Treasury economists recently issued a cautious outlook, expecting only a brief recovery, with the AUD peaking around March 2026 and possibly retreating again by year’s end.

Wall Street analysts generally warn that if the US avoids recession but the dollar remains strong due to rate differentials, the AUD will struggle to break above 0.67.

Overall, in the first half of 2026, the AUD is likely to fluctuate between 0.68 and 0.70, influenced by Chinese data and US non-farm payrolls. Short-term, the AUD is unlikely to fall sharply because of Australia’s relatively stable fundamentals and hawkish RBA stance; but it probably won’t surge above 0.75 either, given the persistent structural strength of the dollar. Risks include China’s data surprises on the downside, while long-term positives hinge on resource exports and potential commodity cycle recovery.

Trading opportunities at the historic lows—Forex margin trading guide

Because the AUD is at historic lows, its volatility range is relatively clear, creating opportunities for traders. AUD/USD is among the top five most traded currency pairs globally, with high liquidity and reliable technical signals.

Investors can leverage forex margin trading to capitalize on potential rebounds. This method allows both long and short positions, with leverage ratios from 1 to 200, enabling small and medium investors to participate. In an environment where the AUD is at lows and volatility is patterned, margin trading offers distinct advantages—profiting from rebounds, multiple entries and exits during fluctuations, and reducing single-trade risks.

The trading threshold is relatively accessible, suitable for investors with limited capital but some understanding of FX analysis. However, all investments carry risks; forex trading is high risk, and investors may lose all their capital. Caution and prudent risk management are essential.

Conclusion: Can the AUD escape its lows in 2026?

For the AUD to truly turn bullish in the medium to long term, three conditions must be met simultaneously: the RBA adopts a hawkish stance again, China’s demand substantively improves, and the US dollar enters a structural weakening phase. If only one or two of these are in place, the AUD is more likely to remain in a range of about 0.65–0.72 rather than a clear upward trend.

The long-term lows of the AUD are not just a temporary predicament but reflect deep structural changes in the global economy. The ongoing strong dollar cycle has not ended, China’s growth momentum remains uncertain, and Australia’s interest rate advantage needs time to rebuild. From another perspective, the lows also present a relatively certain opportunity—volatility is patterned, fundamentals are stable, and investment costs are comparatively low.

For traders, the current lows in the AUD represent a rational opportunity for assessment and strategic participation.