## The Dilemma of the Australian Dollar's Rebound After Hitting a Historic Low — Why the Uptrend Is Difficult to Sustain

As the fifth-largest trading currency globally, the AUD/USD exchange rate exhibits high liquidity and tight spreads in the trading market, which should attract substantial capital participation. However, over the past decade, the Australian dollar, once considered a high-yield currency, has generally weakened. Starting from 1.05 in early 2013, the AUD has depreciated by over 35% by 2023, while the US dollar index has risen by 28.35% during the same period. This "strong dollar cycle" has also impacted major currencies such as the euro, yen, and Canadian dollar.

Behind these figures lies a core fact: **The Australian dollar's historic lows are not accidental but driven by long-term structural factors**.

## The Three Fundamental Reasons for the AUD's Weakness

**The Fate of Commodity Currencies**

Australia's export structure heavily depends on raw materials like iron ore, coal, and energy, making the AUD essentially a commodity currency. The exceptional rebound during the COVID-19 pandemic in 2020, driven by Australia's relatively stable pandemic control and strong Asian demand for commodities, saw the AUD rise about 38% against the dollar within a year. However, this rally was short-lived.

Entering 2023-2024, China's economic recovery has lacked momentum, leading to decreased demand for raw materials and directly impacting the fundamentals supporting the AUD. Even in the first half of 2025, when iron ore and gold prices rebounded, the AUD/USD only rose to around 0.6636, with an annual appreciation of just 5-7%.

**Disappearance of the Interest Rate Differential Advantage**

The core appeal of the AUD for arbitrage capital—interest rate differentials—has faded. Currently, the Reserve Bank of Australia (RBA) holds a cash rate of about 3.60%. Although markets increasingly expect a rate hike to around 3.85% by 2026, this increase offers no clear advantage over the Federal Reserve's rates. When the interest differential diminishes, the AUD's label as a high-yield currency also diminishes.

**Structural Advantages of the US Dollar Are Hard to Shake**

The Federal Reserve's policy cycle remains the primary driver of the global forex market. In a rate-cut environment, the AUD benefits from risk-on sentiment, but if market risk aversion rises or Fed policy expectations shift, capital quickly flows into the dollar. Even if Australia's fundamentals remain stable, the AUD tends to be passively pressured. More critically, US tariffs and trade policies further weaken Australia's raw material export appeal.

## Three Key Variables for AUD Future Trends

To forecast whether the AUD can continue its rebound from historic lows, investors need to monitor the following indicators:

**First: The Hawkishness of the RBA's Monetary Policy**

Whether the RBA maintains hawkish expectations directly influences the AUD's interest rate advantage. If inflation remains sticky and employment stays resilient, a hawkish stance will help the AUD rebuild its relative strength. Conversely, a failure to hike rates will weaken the AUD's support.

**Second: China's Economic Recovery and Commodity Prices**

Australia's export reliance on China makes Chinese demand the most critical external driver. When China's infrastructure and manufacturing activity pick up, iron ore prices tend to strengthen, and the AUD/USD typically reacts quickly; if not, even short-term commodity rebounds may not sustain the AUD's gains.

**Third: Global Risk Sentiment and the US Dollar's Direction**

From a capital flow perspective, the Fed's policy cycle is irreplaceable. A rate-cut cycle favors the AUD, but if global risk assets decline and capital flows back into the dollar, the AUD may weaken even without deteriorating fundamentals. Currently, weak energy prices and sluggish global demand do not favor risk appetite, leading investors to prefer safe-haven assets over cyclical currencies.

## Major Institutions' Forecasts for the AUD's Future

Market opinions on the AUD's medium- to long-term prospects vary:

**Optimistic Predictions**

Morgan Stanley believes the AUD could rise to 0.72 by the end of 2025, supported by the RBA's hawkish stance and rising commodity prices. Traders Union's statistical models project an average of about 0.6875 by late 2026 and up to 0.725 by 2027, emphasizing Australia's labor market recovery and commodity demand outlook. These forecasts assume a soft landing for the US economy and a decline in the dollar index.

**Conservative Predictions**

UBS suggests that despite Australia's resilient economy, global trade uncertainties and potential Fed policy shifts will limit the AUD's gains, expecting it to stay around 0.68 by year-end. Commonwealth Bank economists are more cautious, predicting only a short-term rebound with a high point around March 2026 before resuming a downtrend. Some Wall Street analysts warn that if the dollar remains super-strong due to interest rate differentials, the AUD will struggle to break through 0.67 resistance.

## Mid-term Outlook for the AUD After Hitting a Historic Low

In summary, for the AUD to break out into a genuine medium- to long-term bull trend, three conditions must be met simultaneously: the RBA returning to a hawkish stance, a substantial improvement in Chinese demand, and a structural weakening of the US dollar. Meeting only one or two of these conditions is more likely to result in the AUD remaining in a range rather than a sustained rally.

Looking at the first half of 2026, the AUD is likely to hover between 0.68 and 0.70, influenced by cyclical fluctuations in Chinese economic data and US non-farm payrolls. A sharp collapse is unlikely in the short term, given Australia's relatively stable fundamentals and the RBA's hawkish stance, but a move to 1.0 remains improbable due to the US dollar's structural advantages. Recent pressures mainly stem from fluctuations in Chinese economic data, while long-term positives depend on whether Australia's resource exports can align with the global commodity cycle recovery.

## Investment Insights from the AUD's Historic Low

As a commodity currency, the AUD's volatility is relatively predictable, and its liquidity is high, making medium- to long-term trend analysis more manageable. Investors can participate through spot forex or margin trading, employing flexible long and short strategies. However, all forex investments carry risks; investors should fully understand the structural characteristics of the AUD and avoid blind entries without clear macroeconomic support.

The process of the AUD falling from its all-time high to its historic low fundamentally reflects deep changes in the global financial landscape. While short-term rebounds are possible, a sustained trend reversal requires more definitive conditions. Until these conditions are met, rational caution remains the best approach for investing in the AUD.