Why has the AUD been falling continuously? Can I still buy the dip now?

The Australian dollar is the fifth most traded currency in the world, with strong liquidity and low spreads, which should have made it quite attractive. However, over the past decade, the AUD has been depreciating, falling from 1.05 in 2013 to its current level, a cumulative depreciation of over 35%. In contrast, the US dollar index has risen by 28% during the same period, and the AUD has clearly lost badly.

Why is the Australian Dollar Getting Weaker?

The fundamental reason is simple: Australia's economy is highly dependent on commodity exports (iron ore, coal, copper). When commodity prices fluctuate, the Australian dollar shakes along with it. Additionally, this decade has been a strong dollar cycle, with all non-US currencies being hit, and the Australian dollar is just along for the ride.

The worst part is the recent fall: in the fourth quarter of 2024, the Australian dollar fell by 9.2% against the US dollar, and after entering 2025, due to the intensification of the trade war, the Australian dollar even dropped to a five-year low of 0.5933. The decline in raw material exports has led to capital fleeing Australian assets.

The good news is: In September, the Australian dollar rebounded, reaching 0.6636 (the highest since November 2024), mainly due to the surge in iron ore and gold, along with rising expectations of interest rate cuts by the Federal Reserve stimulating risk appetite.

Can the AUD rise back?

Key points to focus on:

1. Australian Central Bank Policy Australia's third-quarter CPI rose 1.3% month-on-month, exceeding expectations. The central bank emphasized that inflation is hard to cool down, and there was no interest rate cut in the November meeting. Market expectations for subsequent easing policies are cooling down. This, in turn, provides short-term support for the Australian dollar (making it more attractive relative to the US dollar).

2. Is the US dollar strong? Although the Federal Reserve has cut interest rates twice this year, Chairman Powell's attitude remains cautious, and market expectations for further rate cuts are cooling. The U.S. dollar index has shown remarkable resilience, rebounding from 96 in the summer to now, and it even has the potential to break through the psychological level of 100. A strong U.S. dollar means a weak Australian dollar; this is an ironclad rule.

3. How is the Chinese economy? The largest buyer in Australia is China, and the state of the Chinese economy directly determines the demand for iron ore and coal. With the real estate market continuing to be sluggish, the Australian dollar lacks important support.

How do institutions view it?

Morgan Stanley is the most optimistic, expecting the Australian dollar to rise to 0.72 by the end of the year. UBS is more conservative, estimating it will remain at 0.68. CBA believes the rebound of the Australian dollar may be short-lived, predicting a peak in March 2026 before it falls back.

How to operate in the short, medium, and long term?

Short-term (1-3 days): Cautiously bullish, focus on the breakthrough of the 0.6450 resistance level. If it breaks through, the target is 0.6500; if it falls below the 0.6373 support, the target for short positions is 0.6300.

Medium term (1-3 weeks): The expectation of interest rate cuts by the Federal Reserve is rising + commodity prices are strengthening, the Australian dollar may test 0.6550-0.6600. Conversely, if the US dollar strengthens, the Australian dollar may drop to 0.6250.

Long-term holding: Accumulate positions in batches at low points, smooth out fluctuations with time, and wait for confirmation of trend reversal signals.

Risk Warning: The Australian Dollar is highly volatile, and forex trading is inherently high risk, which may result in total loss. Do not go all in.