Can the Australian dollar rebound from its historical lows? Exchange rate analysis and investment outlook for 2026

The Australian dollar, as the fifth-largest traded currency globally (after the US dollar, euro, Japanese yen, and British pound), also attracts significant attention in the international foreign exchange market with its AUD/USD exchange rate pair. Its high trading activity, ample liquidity, and low spreads make this currency pair a popular choice for short-term trading and medium- to long-term positioning.

It is worth noting that the AUD has long been known as a high-yield currency, often serving as a target for carry trades and hot money flows. However, on a longer time scale, the overall trend of the AUD over the past decade has not been optimistic—falling from the 1.05 level in early 2013 to near its historical lows currently, with a cumulative depreciation of over 35%. During this period, the US dollar index rose by 28.35%, forming a typical strong dollar cycle, and other major currencies such as the euro, yen, and Canadian dollar also suffered.

Why Is the AUD in a Long-Term Downtrend? Analyzing Three Fundamental Factors

The weakening of the AUD is not accidental but the result of multiple interacting factors.

First is the shift in commodity price cycles. Australia’s economy is highly dependent on exports of iron ore, coal, and energy. During China’s robust recovery from 2009 to 2011, demand for commodities was strong, pushing the AUD/USD to around 1.05; during the global commodities bull market from 2020 to 2022, iron ore hit record highs, and the AUD briefly rose above 0.80. However, since 2023, China’s economic recovery has shown weak momentum, commodity demand has declined, and the AUD has been under long-term pressure.

Second is the loss of interest rate advantage. The divergence in monetary policy between the Reserve Bank of Australia (RBA) and the Federal Reserve is key. When Australian interest rates were significantly higher than US rates, it attracted large inflows of carry trade capital. But as the US aggressively raised interest rates, the interest rate differential between Australia and the US has narrowed or even reversed, greatly reducing the attractiveness of the AUD as a high-yield currency. Currently, the RBA’s cash rate is about 3.60%, and market expectations suggest the US may maintain relatively high rates, making it difficult for the interest rate advantage to re-emerge.

Third is the fluctuation in global risk sentiment. US tariff policies impact global trade, and pressure on raw material exports directly undermines Australia’s status as a commodity currency. When risk aversion rises, capital tends to flow back into safe-haven assets like the US dollar, and the AUD, as a cyclical currency, tends to weaken in comparison.

Will the AUD Rebound in 2025? Key Turning Points

It is noteworthy that the AUD showed signs of a rebound in the first half of 2025. Benefiting from rising iron ore and gold prices, along with the US Federal Reserve cutting rates and driving capital into risk assets, the AUD/USD once reached 0.6636, appreciating about 5-7% for the year.

But can this rebound turn into a medium- to long-term trend? Market opinions vary significantly.

Optimists believe that if the US economy achieves a soft landing and the US dollar index declines, it will benefit commodity currencies. Morgan Stanley forecasts the AUD/USD could rise to 0.72 by the end of the year, based on the core logic that the RBA maintains a hawkish stance and commodity prices are supported. Traders Union’s statistical model also predicts that by the end of 2026, the AUD will average around 0.6875 (range 0.6738-0.7012), and by the end of 2027, it could further rise to 0.725, emphasizing the importance of a strong Australian labor market and a recovery in commodity demand.

Pessimists warn of risks. UBS believes that although Australia’s domestic economy remains resilient, uncertainties in global trade and changes in Fed policy could limit the AUD’s upside, with the exchange rate expected to stay around 0.68 by year-end. Economists at the Commonwealth Bank of Australia are more cautious, predicting that the AUD’s recovery may be short-lived—peaking around March 2026 but falling back again by year-end. Some Wall Street analysts also warn that if the US dollar remains super-strong due to interest rate advantages, the AUD will struggle to break through resistance at 0.67.

Three Key Indicators to Track AUD Trends

To determine whether the AUD has the potential for sustained appreciation, investors should focus on the interaction of these three factors:

Factor 1: RBA interest rate policy and interest rate differential

The high-yield nature of the AUD heavily depends on the Australia-US interest rate spread. If the RBA maintains a hawkish stance, inflation remains sticky, and the labor market stays resilient, the interest rate differential could widen again, providing tangible support for the AUD; conversely, if rate hike expectations fade, the AUD’s support will weaken significantly.

Factor 2: China’s economic performance and commodity prices

As a commodity currency, the AUD is essentially a barometer of Chinese demand. When China’s infrastructure and manufacturing activity pick up, iron ore prices tend to strengthen, and the AUD quickly reflects this in the exchange rate. Conversely, if China’s recovery remains insufficient, even short-term rebounds in commodities may lead to a quick correction in the AUD.

Factor 3: US dollar trend and global risk sentiment

From a capital flow perspective, the Federal Reserve’s policy cycle remains central to the global FX market. A rate-cut environment favors risk currencies like the AUD, but if risk aversion rises and capital flows back into the US dollar, the AUD can weaken even if its fundamentals are stable. Recent energy prices and global demand softness are not optimistic, prompting investors to prefer safe-haven assets.

In conclusion: For the AUD to break out into a genuine medium- to long-term bull trend, three conditions must be met simultaneously—hawkish RBA policy, substantial improvement in Chinese demand, and a structural weakening of the US dollar. If only one or two of these are present, the AUD is more likely to remain in a range-bound oscillation rather than a one-way rally.

2026 AUD Outlook: Higher Probability of Range Trading

Based on forecasts from major institutions and fundamental analysis, the AUD is likely to fluctuate between 0.68 and 0.70 in the first half of 2026. Short-term pressures mainly stem from fluctuations in China’s economic data, while long-term positives include a potential recovery in Australia’s resource exports and commodity cycles.

My personal view is that the AUD will not crash sharply—Australia’s solid fundamentals and the relatively hawkish stance of the RBA provide a bottom support; but it’s also unlikely to surge to 0.80 or higher—structural US dollar advantages still exist. A more realistic scenario is that, under the influence of policy expectations, commodity prices, and risk sentiment, the AUD will exhibit wide-range oscillations.

Forex Trading: Tools to Capture AUD Volatility

The AUD/USD exchange rate is influenced by many factors. Although precise prediction is difficult, the clear characteristics of the Australian currency—high liquidity, strong technical patterns, and structural features—make medium- to long-term trend analysis more accessible.

Forex margin trading is an effective way to capitalize on AUD volatility. Investors can engage in both long and short positions, using appropriate leverage (typically 1-200x), seeking profits in bullish markets or potential gains in bearish markets. This trading approach has low entry barriers and is suitable for small- to medium-sized investors.

A key reminder: All investments carry risks. Forex trading is a high-risk asset class, and investors may face the risk of losing their entire capital. It is recommended that traders thoroughly learn market knowledge and test trading strategies through demo accounts before engaging in live trading.

Summary of AUD Investment

As a “commodity currency” of a major commodity-exporting country, the AUD is highly correlated with prices of iron ore, copper, coal, and other raw materials. In the short term, the hawkish stance of the RBA and strong commodity prices will provide support; but in the medium to long term, global economic uncertainties and potential US dollar rebounds could limit the upside.

Although the forex market is volatile and predicting exchange rates precisely is challenging, the AUD’s high liquidity, strong technical patterns, and distinctive economic structure offer investors opportunities to grasp medium- to long-term trends through systematic analysis.