AUD trend analysis: How much further is the recovery path for commodity currencies?

As the fifth-largest traded currency globally, fluctuations in the AUD/USD exchange rate always attract market attention. However, despite active trading, the Australian dollar’s performance over the past decade has been less than ideal—depreciating over 35% from the 1.05 level in early 2013 to now. So the question is: will the AUD make a comeback?

Why has the AUD been persistently weak?

The AUD is a typical commodity currency. Australia’s economy heavily relies on exports of iron ore, coal, copper, and other bulk commodities, which determines a close relationship between the AUD exchange rate and global raw material prices. When commodity prices fluctuate, the AUD experiences significant changes.

Data from the past ten years clearly illustrates this. Between 2013 and 2023, the US Dollar Index (DXY) rose by 28.35%, while major currencies like the AUD, EUR, JPY, and CAD all depreciated relative to the dollar. This reflects a clear trend: the sustained pressure of a strong dollar cycle.

Entering 2025, the AUD’s performance has been volatile. It hit a five-year low of 0.5933 at the start of the year, but later rebounded amid rising iron ore and gold prices, as well as market expectations of Fed rate cuts. By mid-September, the AUD/USD even rose to 0.6636, reaching a new high since November 2024.

Analysts point out that the fundamental reasons for the AUD’s continued weakness include: deterioration of the global trade environment suppressing raw material demand, the difficulty in reversing the interest rate differential between Australia and the US, and sluggish domestic economic growth.

The three key drivers of AUD movement

Australia’s domestic economy and central bank policies

The recent stance of the Reserve Bank of Australia (RBA) is crucial. Although inflation is close to the target range, the RBA remains cautious. In Q3 2025, Australia’s CPI rose 1.3% year-over-year, exceeding market expectations, prompting the RBA in November to hold interest rates steady at 3.6% and signal caution. This significantly reduces the likelihood of large rate cuts.

A hawkish central bank stance often provides short-term support to the AUD, especially compared to countries pursuing easing policies. However, if Australia’s economic growth continues to slow, pressure for rate cuts will re-emerge.

US dollar strength and Federal Reserve policy

The strength of the dollar directly influences the AUD—these two often move inversely. After the Fed completed its second rate cut of the year in October, recent signals suggest the pace of further cuts may slow. Despite market discussions about dollar depreciation and de-dollarization trends, the dollar index has shown resilience since bottoming at 96 in summer, rebounding about 3% recently, with the possibility of breaking above 100 increasing.

China’s economic recovery progress

Australia’s economic structure makes it highly dependent on the Chinese market. Demand for key Australian exports like iron ore, coal, and natural gas directly supports the AUD. When China shows signs of a strong recovery, resource exports increase, boosting the AUD. Conversely, if China’s recovery slows or the property market remains sluggish, the AUD will lose important support.

How do market institutions view the AUD outlook?

Major financial institutions have differing views on the AUD’s prospects. Morgan Stanley is relatively optimistic, expecting the AUD/USD to reach 0.72 by year-end, citing the potential for the RBA to maintain a hawkish stance and commodity prices providing support.

UBS is more cautious, citing global trade uncertainties and Fed policy changes as limiting factors, expecting the exchange rate to stay around 0.68 by year-end.

CBA economists are the most conservative, believing the AUD’s recovery may be short-lived. They forecast the AUD/USD to peak around March 2026 and then decline again, as US economic growth may outpace other major economies, strengthening the dollar anew.

Currency pair forecasts for AUD movement

AUD/USD: Range-bound trading mainly

In the short term, expect the AUD/USD to fluctuate between 0.63 and 0.66. If inflation data continues to improve and economic fundamentals remain stable, it may test resistance above 0.66. Conversely, if global risk sentiment worsens or the dollar strengthens, the AUD could fall back toward 0.63 or lower.

Key monitoring points include: US economic data strength, Australian CPI trends, international trade policy changes, and commodity prices.

AUD/CNY: Follows AUD/USD but with smaller volatility

Given the relative stability of the RMB, AUD/CNY is expected to range between 4.6 and 4.75. If the RMB weakens due to domestic or external pressures, AUD/CNY could temporarily rise toward 4.8.

AUD/MYR: Downward pressure exists

Malaysia’s economy also relies on raw material exports, and the MYR is sensitive to commodity prices. Amid global economic uncertainties, AUD/MYR may fluctuate between 3.0 and 3.15. If Australian economic data weaken further, it could test the 3.0 support level.

Investment strategies for AUD

Short-term trading (1-3 days): Focus on technical breakouts

Long opportunities arise if the price breaks above 0.6450 resistance. If AUD stabilizes above this level, consider small long positions targeting 0.6500 psychological level, with stops below 0.6420.

Short positions could be considered if the price falls below 0.6373 support, targeting 0.6300, with stops above 0.6400.

Be cautious before major data releases. US GDP, core PCE, and Australian CPI reports can cause significant volatility, so reducing position sizes is advisable.

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

Bullish scenario: When Fed rate cut expectations rise, US employment data weaken, and trade tensions ease, the AUD may benefit from improved risk sentiment, targeting 0.6550–0.6600. A technical breakout above the 200-day moving average (0.6464) is an important reversal signal.

Bearish scenario: If US economic resilience exceeds expectations and the Fed delays rate cuts, the dollar could regain strength, pushing the AUD toward the year’s low around 0.6250. Escalating trade tensions or weak Chinese economic data could also increase downside risks.

Long-term positioning: Gradual build-up

If bullish on the AUD’s long-term prospects, consider accumulating in phases at current lows, smoothing out market fluctuations over time. Once a clear uptrend is confirmed, hold firmly.

Overall view

The AUD/USD is currently at a critical juncture of technical oscillation and fundamental debate. Short-term trading should focus on the 0.6370–0.6450 range, with breakout strategies. The medium- to long-term direction ultimately depends on signals from Fed policy shifts and whether global trade risks ease.

Traders should closely monitor economic data releases, especially employment and inflation indicators, and adjust strategies flexibly. While the AUD faces volatility, it is undergoing a process of recovery from extreme weakness, presenting both opportunities and risks.