The Australian dollar remains under pressure. Where is the rebound heading? An in-depth analysis of the China-Australia exchange rate trend

As one of the most actively traded currencies globally, the AUD/USD pair has long been favored by investors worldwide due to its liquidity and tight spreads. However, over the past decade, the Australian dollar has underperformed, falling from around 1.05 in early 2013 to today, with a cumulative depreciation of over 35%. What has actually happened behind this? How will the future of the AUD exchange rate evolve?

Why has the AUD been in a long-term weakness? Three structural factors

The Australian dollar is essentially a commodity currency—Australia’s economy heavily relies on exports of iron ore, coal, copper, and other resources. This characteristic determines that the AUD’s movements are closely linked to global commodity prices. When raw material demand is strong, the AUD benefits; otherwise, it suffers.

Over the past ten years, the fundamental reason for the AUD’s weakness has been dominated by a strong US dollar cycle. During the same period, the US dollar index rose by 28%, while major currencies like the euro, yen, and Canadian dollar depreciated against the dollar. This was a comprehensive currency competition, and the AUD did not decline in isolation.

The diminishing interest rate advantage has further intensified this situation. Once considered a “high-yield currency,” the AUD attracted substantial carry trade funds. But as global interest rates changed, the AUD’s interest rate spread gradually flattened, reducing its attractiveness. Meanwhile, the interest rate differential between Australia and the US has been difficult to reverse, with Australia’s domestic economic growth sluggish, further weakening the appeal of Australian assets.

In Q4 2024, the AUD/USD fell approximately 9.2%. Entering 2025, escalating trade tensions and recession fears pushed the AUD briefly down to 0.5933, a five-year low. This reflects deep market pessimism about Australia’s export prospects.

Signs of a rebound have appeared, but how far can it go?

Since mid-2025, the AUD has shown positive signals. Rising iron ore and gold prices, along with expectations of Fed rate cuts, have driven funds back into risk assets. In September, AUD/USD surged to 0.6636, reaching its highest point since November 2024.

But is this rebound sustainable? The key depends on three major factors:

Australia’s domestic economy and central bank stance

In Q3, Australia’s Consumer Price Index (CPI) rose by 1.3% month-over-month, exceeding market expectations. The Reserve Bank of Australia (RBA) remains cautious about inflation pressures, emphasizing that until inflation stabilizes and declines, the possibility of rate cuts is limited. This hawkish stance provides short-term support for the AUD but also caps further gains.

US dollar strength or weakness determines relative performance

In October, the Fed cut its benchmark rate to a 3.75%-4.00% range, but signals from Powell suggest limited room for further rate cuts in December. The US dollar index rebounded from 96 in summer to around 100, showing surprising resilience. A stronger dollar often directly depresses the AUD, with the two moving inversely.

China’s economic recovery influences commodity demand

China is Australia’s largest buyer of resources. The strength or weakness of China’s economy directly impacts demand for key raw materials like iron ore, coal, and natural gas. If China’s property market remains sluggish, it will exert long-term pressure on the AUD. Conversely, economic recovery would provide strong support.

Diverging views among major institutions

Analysts on Wall Street have differing outlooks for the AUD:

Morgan Stanley is relatively optimistic, expecting the AUD/USD to rise to 0.72 by year-end, citing the potential for the RBA to maintain a hawkish stance and supportive commodity prices.

UBS is more cautious, citing high global trade uncertainty and risks from Fed policy changes, expecting the exchange rate to stay around 0.68 by year-end.

The Australia and New Zealand Banking Group (ANZ) holds the most conservative view, believing the recent rebound may be short-lived, with a peak around March 2026, followed by a potential decline.

Forecasts for AUD exchange rate versus other currencies

AUD/USD: Mainly range-bound

In the short term, AUD/USD is expected to fluctuate between 0.63 and 0.66. If inflation data continues to improve and the economy remains stable, it may test resistance above 0.66. Conversely, if global risk appetite deteriorates or the dollar rebounds, the AUD could fall back toward 0.63.

AUD/CNY: Following the main currency pair

The AUD’s performance against the Chinese yuan will closely follow its movement against the USD, but with slightly smaller volatility. Over the next 1-3 months, considering China’s relatively stable economy, AUD/CNY may range between 4.6 and 4.75. If the yuan weakens due to domestic pressures, AUD/CNY could briefly rise toward 4.8.

AUD against ASEAN currencies: Regional divergence

AUD/MYR (Malaysian Ringgit) is expected to fluctuate between 3.0 and 3.15. Southeast Asian currencies are also sensitive to commodity prices, and regional economic resilience will influence relative strength.

Short-, medium-, and long-term trading strategies

Short-term (1-3 days): Cautiously participate in rebounds

Opportunities to go long may arise if AUD/USD breaks above 0.6450 resistance, with a small position targeting 0.6500 psychological level. Trigger conditions include US GDP or non-farm payrolls weaker than expected, or Australian CPI unexpectedly rising. Stop-loss at 0.6420.

Shorting opportunities could be considered if it breaks below 0.6373 support, targeting 0.6300. Trigger conditions include strong US data or significant cooling of Australian inflation. Stop-loss at 0.6400.

Reduce positions ahead of key data releases, as market volatility may increase.

Medium-term (1-3 weeks): Trend following

Bullish scenario: If Fed rate cut expectations intensify, employment data weaken, and inflation declines, the AUD could benefit from risk sentiment, targeting 0.6550-0.6600. A technical breakout above the 200-day moving average (0.6464) would confirm a medium-term reversal.

Bearish scenario: If US economic data remain strong, the Fed delays rate cuts, or trade tensions escalate, the AUD could test 0.6250.

Long-term positioning: Gradual accumulation on dips

Investors optimistic about the AUD long-term can build positions gradually at current lows, smoothing out market volatility over time. Focus on signals of Fed policy shifts and easing global trade risks.

Investment tips and risk management

The AUD exhibits high volatility, offering opportunities for two-way trading. Investors should closely monitor three key event-driven factors:

1. US economic data: GDP, non-farm payrolls, core PCE directly influence the dollar, and thus the AUD.

2. RBA meetings: RBA policy guidance determines the relative attractiveness of the AUD. Any unexpected shift can trigger sharp swings.

3. Commodity prices: Iron ore, gold, and other prices reflect China’s economic health and global risk appetite, serving as core drivers for the AUD.

Foreign exchange trading involves high risk, including the potential for full loss of principal. It is recommended to implement strict risk controls, including setting stop-loss orders, managing leverage carefully, and avoiding overtrading. All investment decisions should be based on thorough market analysis and risk assessment, not on herd behavior.

Currently, the AUD/USD is in a stage of technical and fundamental tug-of-war. Short-term, maintain range trading (0.6370-0.6450), and follow the trend upon breakout. The medium- to long-term direction depends on Fed policy shifts and whether global trade risks ease. If data this week reinforce expectations of rate cuts, consider positioning for longs; otherwise, beware of dollar rebound pressures. Traders should stay alert to market sentiment changes before and after data releases and adjust strategies flexibly.