AUD has declined by 35% over the past ten years. Will it rebound in the future? Analyzing the historical exchange rates to assess the opportunities and risks for the AUD to USD in 2026.

The Australian dollar (AUD) is the fifth most traded currency globally (after USD, EUR, JPY, GBP). The AUD/USD currency pair is highly liquid and actively traded in the forex market, making it a key target for many investors engaging in short-term trading or medium- to long-term positioning. However, looking back at the past decade’s performance, the AUD’s trend has been quite disappointing.

From a starting point of 1.05 in early 2013 to the end of 2023, the AUD/USD has fallen by over 35%, while the US Dollar Index (DXY) has risen by 28.35% during the same period. This is not solely a weakness of the AUD but part of a broader “strong dollar cycle.” Major currencies like the euro, yen, and Canadian dollar have also depreciated against the dollar, indicating that the dollar’s strength is the fundamental driver.

Why has the AUD been under long-term pressure? Three structural reasons

The AUD was once considered a high-yield currency, a common target for hot money and carry trade strategies. However, its weak performance over the past ten years reflects deeper economic changes.

First is the diminishing interest rate differential attractiveness. The Reserve Bank of Australia (RBA) currently has a cash rate of about 3.60%, still below the Federal Reserve’s policy rate, but the advantage of the interest rate differential has largely disappeared compared to earlier years. As the gap narrows, the appeal of the AUD as a “carry currency” diminishes.

Second is the sluggish commodity export sector. The Australian economy heavily relies on exports of iron ore, coal, energy, and other commodities, making the AUD a typical “commodity currency.” During 2013-2015, as China’s growth slowed, demand for raw materials declined sharply, directly impacting the AUD. Even during the global commodities boom from 2020-2022, with iron ore reaching new highs and the AUD briefly breaking 0.80, such rebounds were often short-lived.

Third is the relatively strong US economy. The US economy has shown resilience beyond expectations, and the Federal Reserve’s relatively hawkish stance has continued to attract global capital into the dollar. When there are significant differences in economic growth and policy between the US and Australia, the AUD’s support naturally weakens.

Can the AUD break out of a long-term bull trend? The key depends on three variables

To assess whether the AUD has the potential for medium- to long-term appreciation, the market needs to monitor three major factors simultaneously:

RBA’s interest rate policy shift. Currently, market expectations suggest the RBA may raise rates again by 2026, with Commonwealth Bank of Australia (CBA) forecasting a peak rate possibly reaching 3.85%. If inflation remains sticky and the employment market stays resilient, a hawkish stance from the RBA could restore the interest rate differential advantage for the AUD; conversely, if rate hike expectations fall short, the AUD’s support will weaken significantly.

China’s economic trajectory and commodity prices. China’s infrastructure investment and manufacturing activity are core variables for Australia’s exports. When domestic demand in China rebounds, prices for iron ore, copper, and other raw materials tend to rise in tandem, often reflected quickly in the AUD exchange rate. However, if China’s recovery is weak, even short-term commodity rebounds may be followed by quick reversals in the AUD.

US dollar index and global risk appetite. The Federal Reserve’s policy cycle continues to dominate global FX markets. In a weakening dollar environment, risk-sensitive currencies like the AUD often benefit; but if risk aversion rises and capital flows back into the dollar, the AUD can weaken even if its fundamentals are stable. Recently, market sentiment has slightly improved, but energy prices and global demand remain subdued, leading investors to favor safe-haven assets over cyclical currencies.

In summary, for the AUD to truly enter a bullish phase in the medium to long term, three conditions must be met simultaneously: the RBA shifts back to a hawkish stance, China’s demand substantially improves, and the dollar enters a structural weakening phase. Meeting only one of these conditions is more likely to result in the AUD remaining range-bound rather than a sustained rally.

The 2025 rebound and its limitations

In the first half of 2025, the AUD performed relatively well, mainly supported by a sharp rise in iron ore and gold prices, along with the Fed beginning to cut rates, which directed capital toward risk assets. The AUD/USD briefly rose to 0.6636, appreciating by about 5-7% during that year.

However, this rebound did not alter the long-term weak trend of the AUD. Whenever the AUD approaches previous highs, selling pressure tends to increase, reflecting limited confidence in the currency. Analysts point out that US tariffs impacting global trade, declining raw material exports, and domestic economic weakness in Australia all constrain the AUD’s upside potential.

From a medium- to long-term perspective, the AUD now appears more like a “rebound with no clear trend.” Without strong growth drivers or interest rate differentials, its movements are more influenced by external factors rather than its own fundamentals.

Market outlook divergence: who is bullish, who is bearish?

Regarding the future of the AUD, major market institutions hold markedly different views.

Morgan Stanley remains relatively optimistic, projecting the AUD/USD could rise to 0.72 by the end of 2025. This outlook is based on expectations that the RBA will maintain a hawkish stance and that commodity prices will stay strong.

Traders Union’s statistical model indicates an average of about 0.6875 (range 0.6738-0.7012) by the end of 2026, rising further to 0.725 by the end of 2027, emphasizing Australia’s strong labor market and a recovery in commodity demand.

The common basis for these optimistic forecasts is that if the US economy achieves a soft landing and the dollar index declines, it will favor currencies like the AUD.

UBS’s view is more conservative, believing that despite Australia’s economic resilience, uncertainties in global trade and potential Fed policy shifts could limit the AUD’s gains, with the exchange rate expected to stay around 0.68 by year-end.

CBA economists recently expressed a cautious outlook, suggesting that the AUD’s recovery might be temporary, predicting the AUD/USD will peak around March 2026 but could decline again by the end of 2026.

Some Wall Street analysts warn that if the US avoids recession but the dollar remains super-strong due to interest rate differentials, the AUD will struggle to break through the 0.67 resistance level.

Outlook for 2026: what will determine the AUD’s direction

Based on various analyses, the AUD is likely to fluctuate within the 0.68-0.70 range in the first half of 2026, mainly influenced by China’s economic data and US non-farm payroll reports.

From an investor’s perspective, the AUD is unlikely to crash sharply because Australia’s fundamentals are relatively stable, the RBA remains hawkish, and these factors provide support. However, it is also unlikely to surge directly to parity (1.0), given the structural advantages of the dollar. Short-term pressures mainly stem from uncertainties in Chinese data, while long-term positives include the potential recovery of Australia’s resource exports and commodity cycles.

To accurately gauge the AUD’s trajectory, investors should continuously monitor three key events: RBA rate hikes, China’s quarterly GDP data releases, and Federal Reserve policy meetings. Changes in these factors will determine the AUD’s position within the 0.65-0.72 range.

Risks and opportunities in AUD investment

As one of the top five most traded currencies globally, the AUD/USD exchange rate is influenced by complex factors, making forecasts challenging. However, its high liquidity and characteristic volatility make medium- to long-term trend analysis more accessible.

For investors interested in AUD trading, the forex market offers various trading methods. Besides traditional forward contracts and futures, other legitimate financial instruments enable both long and short positions. Each tool has its advantages and disadvantages, and investors should choose based on their risk tolerance, capital size, and trading horizon.

It is especially important to emphasize that all investments carry risks. Forex trading is high-risk, and investors may lose all or most of their capital. Before entering the market, one should fully understand their risk capacity and establish clear stop-loss plans. Avoid blindly following trends or trading frequently based on short-term volatility.

Conclusion: the long-term logic of the AUD

As a “commodity currency” of a major commodity-exporting country, the AUD’s pricing is highly correlated with the prices of iron ore, copper, coal, and other raw materials, which is its core valuation logic.

In the short term, the hawkish stance of the RBA and strong raw material prices will provide support. However, in the medium to long term, global economic uncertainties and potential rebounds in the dollar will limit the upside of the AUD.

Although forex markets are volatile and difficult to predict precisely, the AUD’s high liquidity, characteristic volatility, and clear economic structure make it relatively easier for investors to grasp medium- to long-term trends. The key is that investors should continuously monitor the three major variables: RBA policy, China’s economy, and the dollar’s trend, rather than relying solely on short-term technical signals.