Why has the Australian dollar been weak in the long term? Analyzing commodity cycles and the trends of AUD/USD and AUD/TWD exchange rates

The Australian dollar is one of the top five currencies by global trading volume. The AUD/USD currency pair is highly liquid in the international forex market, with a clear advantage in spread. However, despite being regarded as a high-yield currency and a common target for carry trades, its actual performance over the past decade has continued to weaken. From an initial level of 1.05 in early 2013, the AUD/USD has declined by over 35% by 2023, while the US dollar index has risen by 28.35% during the same period, reflecting a comprehensive strong dollar cycle.

It is noteworthy that the Australian dollar experienced a significant rebound during the COVID-19 pandemic in 2020—driven by relatively stable pandemic control in Australia, strong demand for raw materials like iron ore in Asia, and accommodative policies from the Reserve Bank of Australia (RBA). During that year, AUD/USD surged by 38%. However, for most of the subsequent period, the AUD remained in consolidation or a weakening trend. Entering the second half of 2025, with rising iron ore and gold prices, and the Federal Reserve’s rate cuts boosting risk assets, the AUD once appreciated to 0.6636, gaining about 5-7% for the year. From the perspective of the AUD/TWD exchange rate, this rebound also presented a currency exchange opportunity for Taiwanese investors. But from a longer-term view, the structural weakness of the AUD has yet to be reversed.

Weakening Commodity Demand, Diminishing Carry Appeal, Difficult for the AUD to Escape Slump

The long-term weakness of the AUD is primarily due to three fundamental factors moving in unfavorable directions simultaneously.

First is shrinking commodity export demand. Australia’s export structure is highly dependent on iron ore, coal, and energy, making the AUD essentially a commodity currency. When US tariffs impact global trade and raw material exports decline, the AUD’s status as a commodity currency is directly undermined.

Second is diminishing interest rate advantage. Although the Reserve Bank of Australia (RBA) currently has a cash rate of about 3.60%, with market expectations of possibly raising rates again in 2026, the interest rate differential between the US and Australia has not widened as expected, limiting the inflow of arbitrage capital.

Third is Australia’s relatively mediocre domestic economic performance. Without clear growth momentum, Australian assets are less attractive to foreign investors, who tend to prefer safe-haven assets rather than cyclical currencies.

Three Key Factors to Watch for AUD Movement

To grasp the medium- to long-term trend of AUD/USD, investors should focus on the following indicators:

RBA interest rate policy and interest rate differential rebuilding: The RBA’s stance will determine whether the AUD can re-establish an interest rate advantage. If inflation remains sticky and the labor market stays resilient, hawkish rate hike expectations will support the AUD; if rate hike expectations fall short, support will weaken significantly.

China’s economic trajectory and commodity prices: As a commodity currency, the AUD fundamentally reflects the health of China’s infrastructure and manufacturing activity. When Chinese demand rebounds, iron ore prices tend to strengthen, and the AUD responds accordingly; otherwise, it may exhibit a “spike and fall back” pattern.

US dollar trend and global risk sentiment: The Federal Reserve’s policy cycle remains central to the global forex market. A rate-cut environment generally benefits risk currencies like the AUD, but if risk aversion rises and capital flows back into the dollar, the AUD can come under pressure even if its fundamentals are stable.

For the AUD to break out into a genuine medium- to long-term bull trend, three conditions must be met simultaneously: the RBA maintains a hawkish stance, China’s demand substantively improves, and the dollar enters a structural weakening phase. If only one of these is present, the AUD is more likely to remain range-bound rather than trend upward unilaterally.

Outlook for AUD After 2026

Market opinions vary regarding the future of AUD/USD.

Optimistic forecasts include Morgan Stanley, which projects the AUD/USD could rise to 0.72 by the end of 2025, mainly based on the RBA’s hawkish stance and commodity price support. The Traders Union statistical model predicts 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.

Conservative views, represented by UBS, acknowledge Australia’s economic resilience but caution that global trade uncertainties and Fed policy shifts may limit the AUD’s gains, expecting it to stay around 0.68 by year-end. CBA economists are more cautious, predicting the AUD may peak around March 2026 and then decline.

Overall, the AUD is likely to fluctuate between 0.68 and 0.70 in the first half of 2026. Short-term pressures mainly stem from Chinese data volatility and US non-farm payroll reports. However, given Australia’s solid fundamentals and the relatively hawkish stance of the RBA, a sharp collapse is unlikely. Meanwhile, the structural strength of the dollar will continue to cap the AUD’s upside, preventing it from reaching historical highs. Long-term positives include the potential recovery of Australia’s resource exports and commodity cycles.

Regarding the AUD/TWD exchange rate, investors should note that the AUD/USD trend will ultimately influence the TWD exchange rate. When AUD/USD strengthens, the AUD/TWD rate usually improves correspondingly.

Investment Considerations for the AUD

The AUD/USD pair’s high liquidity, regular volatility, and distinct economic structure make medium- to long-term trend analysis relatively straightforward. Investors can participate in AUD investments through forex margin trading, utilizing two-way trading and leverage tools to seek profits.

However, it must be emphasized that all investments carry risks. Forex trading is high-risk, and investors may lose all their capital.

Conclusion on AUD Movement

As a currency of a commodity-exporting country, the AUD is highly correlated with the prices of iron ore, coal, and other raw materials. In the short term, the hawkish stance of the RBA and strong commodity prices provide support; in the medium to long term, global economic uncertainties and potential rebounds in the dollar pose risks, limiting the upside and tending to produce a choppy trend.

Although forex market movements are inherently difficult to predict with complete accuracy, the AUD’s high liquidity and clear economic structure make its medium- to long-term trend relatively easier to grasp. Whether considering the AUD/TWD exchange rate or AUD/USD, investors should focus on changes in commodity cycles, interest rate differentials, and global risk sentiment.