The Australian dollar exchange rate has been in a decade-long downward trend that is hard to reverse. Can it rebound in 2026?

AUD, as one of the top five major currencies by global trading volume (second only to USD, EUR, JPY, GBP), also features the AUDUSD currency pair as one of the most actively traded instruments worldwide. Its high liquidity and low spreads enable traders to execute various strategies efficiently.

However, an awkward reality is that: Over the past decade, the Australian dollar has generally performed weakly. Starting from around 1.05 in early 2013, by 2023, the AUD has depreciated over 35% against the USD, while the US dollar index has risen by 28.35% in the same period. This is not unique to the AUD—major currencies like the euro, yen, and Canadian dollar have also depreciated against the dollar, reflecting a broader context of a strong dollar cycle globally.

Why has the AUD been persistently weak? Declining commodity demand and loss of interest rate advantage

The weak trend of the AUD is not recent. Historical milestones reveal the pattern:

2009-2011, during China’s strong economic recovery and a commodities bull market, the AUD briefly approached 1.05; 2020-2022, despite a short-lived rebound during the pandemic (when Australia’s COVID situation was relatively stable and iron ore demand was strong, pushing the AUD above 0.80), this rally was fleeting; 2023-2024, with China’s recovery lacking momentum and the currency oscillating at high levels, the AUD remained generally weak; entering 2025, despite sharp rises in iron ore and gold prices and the Fed’s rate cut cycle boosting risk assets, the AUD briefly rose to 0.6636, appreciating about 5-7% for the year. However, on a longer-term scale, this was merely a rebound rather than a trend reversal.

Why does the market remain cautious about the AUD? The core reasons are three deteriorating fundamentals:

First, US tariff policies hurt commodity exports. Australia relies heavily on raw material exports (metals, energy), and tariff risks directly weaken the AUD’s commodity currency support.

Second, the interest rate differential advantage has vanished. The gap between US and Australian rates has not only failed to widen but has continued to narrow, eroding the appeal of the “high-yield currency” that once attracted carry trades.

Third, Australia’s domestic economic growth is sluggish. Weak domestic economic performance reduces asset attractiveness and diminishes foreign capital inflows.

Whenever the AUD approaches previous highs, market selling intensifies, reflecting fragile investor confidence. The AUD is more like a “rebound but no trend” currency—lacking clear growth momentum and interest rate advantage, its movement is easily dominated by external shocks rather than fundamentals.

To gauge the AUD’s direction, focus on three core factors

To determine whether the AUD has medium- to long-term upside potential, investors should closely monitor these three dimensions:

1. RBA interest rate policy: Can the interest rate differential be rebuilt?

The Reserve Bank of Australia (RBA) currently has a cash rate of about 3.60%, with market expectations of potential rate hikes in 2026. The Commonwealth Bank of Australia forecasts a peak rate possibly reaching 3.85%.

If inflation remains sticky and the labor market stays resilient, a hawkish stance from the RBA could help restore the AUD’s interest rate advantage; conversely, if rate hike expectations fade, the currency’s support will weaken significantly.

2. China’s economy and commodity prices: External drivers of the AUD

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

When China’s infrastructure and manufacturing activity rebound, iron ore prices tend to strengthen in tandem, and the AUD will respond quickly. But if China’s recovery falters, even short-term commodity rebounds may lead to “spikes followed by declines,” making sustained appreciation difficult.

3. USD trend and global risk sentiment: The determinants of capital flows

The Federal Reserve’s policy cycle still dominates global FX markets. In a rate-cutting environment, a weakening dollar generally benefits risk currencies like the AUD; but if risk aversion rises and capital flows back into the USD, the AUD can come under pressure even if fundamentals are stable.

Recently, market sentiment has slightly improved, but the reality of weak energy prices and sluggish global demand persists. Investors tend to favor safe-haven assets over cyclical currencies like the AUD, limiting upside potential.

In short, for the AUD to enter a genuine medium- to long-term bull phase, 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 USD. If only one of these is present, the AUD is more likely to remain range-bound rather than trend higher.

2026 AUD exchange rate outlook: rebounds unlikely to become a trend

Market opinions on the AUD’s future vary:

Optimists—Morgan Stanley believe the AUD/USD could rise to 0.72, supported by the RBA’s hawkish stance and commodity prices. The Traders Union model forecasts an average of about 0.6875 by the end of 2026 (range 0.6738-0.7012), rising further to 0.725 by the end of 2027.

Cautious—UBS points out that despite Australia’s economic resilience, global trade uncertainties and Fed policy risks may limit gains, expecting the year-end rate around 0.68.

Prudence—Commonwealth Bank of Australia recently warned that the AUD’s recovery might be short-lived, expecting a peak around March 2026 followed by a decline by year-end. Some Wall Street analysts also suggest that if the US avoids recession but the dollar remains strong (due to rate advantages), the AUD will struggle to break above 0.67.

The consensus is: The AUD has short-term recovery potential, but a sustained bullish trend requires clearer macro conditions. Personally, I expect the AUD to oscillate between 0.68 and 0.70 in the first half of 2026. Data from China and US non-farm payroll reports will be key swing factors. The AUD is unlikely to collapse sharply—thanks to Australia’s solid fundamentals and a relatively hawkish RBA—but also unlikely to surge high because of the persistent structural advantage of the dollar. Short-term pressures mainly stem from Chinese data, while long-term positives include Australia’s resource export cycle.

Trading opportunities and risk warnings for the AUD

As one of the top five most traded currency pairs globally, AUD/USD’s high liquidity and predictable volatility make medium- to long-term trend assessment relatively straightforward. Although short-term forecasts are inherently challenging and models have limited accuracy, the AUD’s economic structure is clear. By focusing on key indicators like RBA policy, Chinese commodity demand, and the USD cycle, investors can better gauge the medium-term direction.

For trading AUD, forex margin trading is common. This instrument supports both long and short positions with leverage options from 1-200x, has low entry barriers, and is suitable for small to medium investors. However, it’s crucial to emphasize: Forex trading is high risk, and investors may lose all invested capital. Proper risk assessment and strict risk management are essential before making any decisions.

Summary

As a typical commodity currency, the AUD is highly correlated with iron ore, coal, and other raw material prices. In the short term, hawkish RBA policies and rising commodity prices will provide support, but in the medium to long term, global economic uncertainties and USD rebound risks will limit upside, likely resulting in continued oscillation.

The FX market is volatile and difficult to predict precisely, but the AUD’s liquidity, volatility characteristics, and transparent economic structure allow traders to track and manage risks more effectively. Understanding the interaction between RBA policies, China’s cycle, and the USD’s direction is key to grasping the AUD’s future trend.