When will the Australian dollar bottom out? Analyzing AUD exchange rate trends and investment logic

The Australian Dollar’s Status and Commodity Currency Attributes

The AUD is the fifth most traded currency globally, and the AUD/USD is also among the most active currency pairs. This status benefits from the AUD’s high liquidity and low spreads, providing convenience for both short-term and medium-to-long-term trading.

But you may not know that the AUD is essentially a typical commodity currency. Australia’s economy heavily relies on exports of bulk commodities such as iron ore, coal, and copper, which means that every fluctuation in global raw material prices is directly reflected in the AUD exchange rate. Because of this characteristic, the AUD has become a common target for hot money and carry trade.

Why has the AUD been “depreciating” over the past decade?

The data might be a bit painful at first glance: starting from around 1.05 in early 2013, the AUD/USD has depreciated by over 35% by the end of 2023. Meanwhile, the US dollar index has risen by 28.35%. The euro, yen, and Canadian dollar have also depreciated against the dollar, which actually reflects a core phenomenon—the world has entered a strong dollar cycle.

Specifically, the breakdown of the AUD’s decline:

The key turning point is in Q4 2024. The AUD/USD plummeted, with an annual decline of about 9.2%. Entering 2025, under the dual pressures of escalating global trade tensions and recession fears, the AUD once dipped to 0.5933, hitting a five-year low.

Analysts generally point out that the main culprits for this decline include:

• US tariffs impacting global trade, hurting Australia’s raw material exports
• The persistent US-Australia interest rate differential, leading to continuous outflows of market funds from Australia
• Weak domestic economic conditions, reducing asset attractiveness

The “window” for AUD rebound has appeared

2025 has seen an interesting reversal. After a panic-driven decline caused by Trump’s “reciprocal tariffs,” the AUD started to slowly appreciate. Especially in September, the market experienced multiple positive factors stacking up:

• Iron ore and gold prices surged, providing commodity support for the AUD
• Expectations of Fed rate cuts increased, boosting risk appetite
• On September 10, the AUD/USD rose to 0.6636, breaking a high not seen since November 2024

In the past two months, although the AUD has retreated somewhat, it has remained above 0.64, showing some support strength.

Can the AUD “rise back”? Three key factors determine its direction

The first factor: the policy stance of the Reserve Bank of Australia (RBA)

Australia’s Consumer Price Index (CPI) rose by 1.3% quarter-over-quarter in Q3, exceeding the previous quarter’s 0.7% and breaking market expectations. The RBA thus signaled a hawkish stance—emphasizing that core inflation pressures remain insufficiently eased.

What does this mean? Expectations of rate cuts have significantly cooled down. Market assessments of a rate cut at the November meeting have been greatly reduced. When rate cut expectations weaken, it often provides short-term support for the AUD, making it more attractive compared to currencies that are about to loosen monetary policy.

The second factor: the strength of the US dollar

The Fed announced a second 25 basis point rate cut in October, but Chair Powell’s subsequent comments dampened the market’s enthusiasm—significantly reducing the likelihood of further rate cuts in December.

Interestingly, despite ongoing discussions about dollar depreciation, the US dollar index rebounded from around 96 in summer, rising about 3%. The possibility of breaking the 100 psychological level is increasing. The general rule is: when the dollar strengthens, the AUD tends to weaken, and vice versa—an inverse correlation.

The third factor: the recovery level of the Chinese economy

This is an “invisible driver” of whether the AUD can sustain its rise. Australia’s economic structure is highly resource-export dependent, with China being its largest buyer. China’s demand for key raw materials like iron ore, coal, and natural gas directly determines the AUD’s support level.

When China’s economy shows strong recovery, resource exports and prices from Australia tend to rise, boosting confidence in AUD assets. Conversely, if China’s recovery slows, especially with ongoing real estate weakness, markets will worry about long-term raw material demand, causing the AUD to lose important support.

How do financial institutions view the AUD’s future? Predictions vary widely

Faced with these complex factors, major institutions have differing opinions:

Morgan Stanley’s optimistic outlook: expects the AUD/USD to rise to 0.72 by year-end, supported by the RBA’s hawkish stance and commodity prices.

UBS’s cautious stance: while acknowledging Australia’s resilience, global trade uncertainties and Fed policy shifts will limit AUD upside, with the year-end rate around 0.68.

CBA economists’ more conservative view: believe the AUD’s rebound may be short-lived, possibly reaching a high in March 2026, but falling back by year-end. The core logic is that although the dollar may be relatively weak in 2025, US economic growth surpassing other major economies will cause the dollar to strengthen again.

Analysis of major AUD exchange rates

AUD/USD: seeking a breakout within range

The RBA maintained interest rates at 3.6% in November and issued cautious signals. Currently, AUD/USD hovers around 0.65.

Key influencing factors include:

• Policy divergence: unexpected hold on rate hikes by the RBA provides short-term support, but future divergence remains high
• Inflation and economic data: Australian inflation has eased toward target, but slowing growth raises expectations of rate cuts
• International trade: US tariff risks remain high, and as a commodity currency, AUD’s movement is closely tied to commodity prices

Short-term forecast: AUD/USD likely fluctuates between 0.63 and 0.66. If inflation data remains positive and the economy stays stable, it may test resistance above 0.66. Conversely, if global risk appetite deteriorates or the dollar rebounds, it could fall toward 0.63 or lower.

AUD/CNY: tracking AUD/USD but with slightly smaller volatility

The stability of Sino-Australian trade and the RMB’s movement are key. The RMB is heavily influenced by Chinese central bank policies and US-China relations; recent RMB trends significantly impact AUD/CNY.

Despite weak Chinese economic data, progress in US-China trade negotiations (such as tariff reductions) may ease RMB depreciation pressures.

Short-term forecast: Given the overall stability of the RMB, AUD/CNY may oscillate between 4.6 and 4.75. If the RMB weakens due to domestic economic pressures or external factors, it could short-term rise toward 4.8.

AUD/MYR: regional economic differences create hedging effects

Malaysia’s economy relies on exports and raw materials, with the ringgit sensitive to commodity prices. The Bank of Malaysia’s policy remains relatively stable and may hold or tighten.

Short-term forecast: AUD/MYR may fluctuate between 3.0 and 3.15. If Australian economic data shows further weakness, it could test support near 3.0.

AUD trading strategy framework

Short-term (1-3 days): cautious bullish bias, watch for resistance breakout

Long entry conditions: price breaks above 0.6450 resistance; if AUD/USD stabilizes above this level, consider small long positions targeting the 200-day moving average at 0.6464 and the psychological level at 0.6500. Triggers include weaker-than-expected US GDP or non-farm payrolls, or stronger-than-expected Australian CPI. Stop-loss at 0.6420.

Short entry conditions: price falls below 0.6373 support; consider short positions targeting 0.6336 (recent low) or even 0.6300. Triggers include strong US data or significant cooling of Australian CPI. Stop-loss at 0.6400.

Wait-and-see: avoid trading before key data releases. Market volatility may increase before US GDP, core PCE, and Australian CPI reports; reduce position sizes or stay on the sidelines.

Medium-term (1-3 weeks): trend-following, flexible response to policy shifts

Bullish scenario: Fed rate cuts expected to increase (weak employment data, falling inflation), combined with easing trade tensions, could benefit the AUD, targeting 0.6550–0.6600. A confirmed breakout above the 200-day moving average signals a medium-term reversal, suitable for adding positions.

Bearish scenario: US economy resilient (strong GDP and non-farm payrolls), delaying Fed rate cuts, leading to USD rebound, with AUD possibly dropping to 0.6250. Risks include escalating trade tensions and weak Chinese economic data.

Long-term strategy: phased position building, time for space

If bullish on the AUD long-term, consider accumulating in dips, leveraging time to smooth out volatility, especially after confirming an uptrend.

Risks in AUD investment

The AUD exhibits significant volatility; traders can seek profits through forex trading. The flexibility of long and short positions, along with leverage, offers opportunities for small and medium investors. However, all investments carry risks—forex trading is high risk, and investors may lose all capital.

Overall conclusion

Currently, AUD/USD is in a key phase of technical consolidation and fundamental contest. Short-term, focus on range trading (0.6370–0.6450), with breakout follow-up. The medium- to long-term direction depends on Fed policy signals and whether global trade risks ease.

Core logic of AUD analysis: monitor three main variables—Australian central bank policy, US dollar strength, and Chinese economic recovery. If data this week reinforce rate cut expectations, consider long positions; otherwise, beware of dollar rebound pressures. Traders should closely watch market sentiment around data releases and adjust strategies flexibly to find certainty amid uncertainty.