Why is the Australian dollar continuously depreciating? Can this rebound last? Analysis of the outlook for AUD against RMB and other major currencies

The Unique Status of the Australian Dollar and Recent Challenges

As the fifth-largest major currency by trading volume globally, the Australian dollar (AUD) has long been a popular choice for investors seeking short-term and medium-to-long-term positions, thanks to its high liquidity and low spreads. However, many are unaware that the AUD belongs to the “commodity currency” category—Australia’s economy is highly dependent on exports of iron ore, coal, copper, and other bulk commodities, meaning that any fluctuations in global raw material markets are directly reflected in the AUD exchange rate.

Coupled with the perception of the AUD as a high-yield currency that has historically attracted arbitrage capital flows, this halo has gradually faded over the past decade. Since early 2013, when the AUD/USD was at 1.05, the currency has depreciated over 35%, while the US dollar index has risen by 28.35%. The euro, Japanese yen, and Canadian dollar have experienced similar declines, indicating a broad USD appreciation cycle worldwide.

Deep-rooted Causes of Depreciation: Strong Dollar and Economic Fundamentals Under Pressure

Over the past ten years, the persistent downward trend of the AUD can be attributed to two main factors:

Dominance of the US Dollar Cycle

From both technical and fundamental perspectives, the AUD faces headwinds. The Federal Reserve’s relatively hawkish stance has supported the USD’s strength, exerting long-term pressure on commodity currencies. Even when the AUD rebounds, it struggles to hold gains at high levels—because the USD remains the dominant market force.

Weak Domestic Economic Momentum

In Q4 2024, the AUD/USD depreciated by 9.2% over the year. Entering early 2025, amid escalating global trade conflicts and recession fears, the AUD briefly fell to 0.5933, a five-year low. Analysis indicates that the main pressures stem from: US tariff policies impacting global trade, pressure on metal and energy exports, the inability of the Australian interest rate differential to reverse, and sluggish domestic economic growth reducing asset attractiveness.

When Will the AUD Rebound? Key Drivers Analysis

In the second half of 2025, a turning point emerged. Supported by rising iron ore and gold prices, expectations of Fed rate cuts, and a rebound in market risk appetite, the AUD began a rally. By mid-September, the AUD/USD reached 0.6636, surpassing the high since November 2024. Although there has been some correction in recent two months, the exchange rate has remained above 0.64.

Three Major Variables Influencing the AUD’s Outlook:

1. Australian Inflation and Central Bank Stance

In Q3 2025, Australia’s CPI rose by 1.3% month-over-month, exceeding the market expectation of 0.7%. The Reserve Bank of Australia (RBA) subsequently emphasized that core inflation in housing construction and services sectors is under unexpected pressure, indicating that further rate cuts will only be considered once inflation enters a sustainable downward trajectory. This wording suggests a limited near-term easing window, providing some support to the AUD—since diminished easing expectations generally enhance the currency’s relative attractiveness.

2. The Rhythm of USD Strength and Weakness

At the end of October, the Fed completed its second rate cut of the year, but signals from the Chair dampened market enthusiasm. Despite speculation about USD depreciation and de-dollarization, the USD index has shown resilience since bottoming near 96 in summer, rebounding about 3%, with a rising likelihood of breaking above 100. Historical experience indicates that when the USD strengthens, the AUD tends to weaken simultaneously, exhibiting an inverse correlation.

3. The Strength of China’s Economic Recovery

Australia’s resource export structure makes it highly dependent on the Chinese market. The strength or weakness of China’s economy directly impacts demand for key raw materials like iron ore, coal, and natural gas. When China’s economy is robust, commodity demand surges, supporting the AUD; conversely, if recovery slows or the property market weakens, concerns about long-term demand emerge, and the AUD loses key support.

Divergent Views Among Institutions on the AUD Outlook

Financial institutions currently hold differing opinions:

Morgan Stanley is relatively optimistic, expecting the AUD/USD to reach 0.72 by the end of 2025, based on the RBA’s hawkish stance and commodity price support.

UBS adopts a more cautious view, believing that despite resilience in Australia’s domestic economy, global trade uncertainties and Fed policy shifts may limit the AUD’s upside, projecting a year-end rate around 0.68.

CBA economists recently issued a more cautious warning: the current rebound in the AUD may be temporary, predicting a peak around March 2026, followed by a decline before year-end. The rationale is that although the USD may weaken in 2025, the US economy’s faster growth compared to other developed economies could lead to a USD resurgence later.

Outlook for AUD against RMB and Other Currencies

AUD/USD: Navigating a Range-bound Pattern

Currently, the AUD/USD hovers around 0.65. The RBA’s decision to hold rates steady in November and its cautious tone provide short-term support, but market expectations remain divided. Key influencing factors include: ongoing policy divergence with the Fed, the actual trajectory of inflation and economic growth data, and geopolitical risks.

In the short term, expect fluctuations between 0.63 and 0.66. If inflation data is favorable and the economy remains stable, the AUD may test resistance above 0.66; if global risk appetite deteriorates or the USD rebounds, the AUD could fall back toward 0.63.

AUD/CNY: Following the AUD/USD Trend

Australia-China trade relations remain a key support for AUD/CNY. The RMB’s movement is heavily influenced by Chinese monetary policy and US-China relations. Recent RMB trends are a significant driver for this currency pair.

China’s economic data has recently been weak (service PMI down to 52.6), but progress in US-China trade negotiations (such as tariff reductions) could ease RMB depreciation pressures. Over the next 1-3 months, given RMB’s relative stability, AUD/CNY is expected to fluctuate between 4.6 and 4.75. If RMB weakens due to economic or external factors, AUD/CNY could short-term rally toward 4.8.

AUD/MYR: Regional Economic Divergence Plays a Role

Malaysia’s economy also relies on exports and raw materials, with MYR highly sensitive to commodity prices. Weakness in Australia’s economy may limit AUD’s rebound potential. The Bank of Malaysia’s policies are relatively stable; if they remain cautious or tighten, MYR could strengthen.

Amid increasing global economic uncertainty, AUD/MYR is expected to fluctuate between 3.0 and 3.15. If Australia’s economic data deteriorates further, the AUD may test support near 3.0.

Investment and Portfolio Strategies

Short-term (1-3 days): Range trading with breakout follow-up

AUD/USD is currently within a technical corridor of 0.6370–0.6450. A break above 0.6450 could be a signal to go long with a small position, targeting the 200-day moving average at 0.6464 and psychological level 0.6500; a break below 0.6373 could be shorted, aiming for 0.6336 or even 0.6300.

Key triggers include weaker-than-expected US GDP or non-farm payroll data (implying higher chance of rate cuts), or unexpectedly warm Australian CPI data. Reduce positions or stay on the sidelines before major data releases.

Medium-term (1-3 weeks): Trend-following, focus on policy signals

Bullish scenario: Fed rate cut expectations rise, technical break above the 200-day moving average, targeting 0.6550–0.6600.

Bearish scenario: US economy outperforms expectations, trade tensions escalate, China’s economic data weaken, pushing the AUD toward 0.6250.

Long-term holding: Gradual build-up, leveraging time

If bullish on the AUD long-term, consider phased accumulation at lows, using time to smooth out volatility, especially after confirming an uptrend.

Overall Outlook and Risk Warning

The AUD/RMB and other major currency pairs are currently at a critical juncture of technical and fundamental interplay. In the short term, range trading is advisable; the medium-to-long-term direction depends on the Fed’s policy shift confirmation and the easing of global trade tensions.

All investment decisions should closely monitor market sentiment around economic data releases and adjust strategies flexibly according to risk tolerance. Forex trading is a high-risk activity; investors should be fully aware of the risk of losing all invested capital.