Recently, I’ve been looking at the Australian dollar trend and noticed an interesting phenomenon: although the AUD has appreciated 5-7% against the USD over the past year, on a longer time scale, the AUD has actually been weakening. The reasons behind the AUD’s depreciation are quite complex, involving more than just short-term fluctuations; there are structural issues at play.

Let me start with some numbers. If you go back to early 2013, the AUD/USD was around 1.05, but by the end of 2023, it had depreciated over 35%. During the same period, the US dollar index rose by more than 28%, and the euro, yen, and Canadian dollar also depreciated against the dollar. So this isn’t an isolated issue for the AUD, but part of a long-term strong dollar cycle.

But why is the AUD particularly weak? I think there are several core reasons. First is the commodity cycle. Australia’s export structure is heavily dependent on bulk commodities like iron ore, coal, and energy—essentially a commodity currency. When demand from China is strong (for example, 2009-2011, 2020-2022), the AUD tends to rise along with it. But in recent years, China’s economic recovery has been lackluster, and commodity demand has been declining, so the external engine for the AUD has lost momentum.

Second is the narrowing of interest rate spreads. The AUD used to attract hot money because of higher interest rates compared to the US, but that advantage is no longer as clear. Although the Reserve Bank of Australia’s cash rate is still around 3.6%, the US interest rate structure remains strong, making the interest rate differential hard to reverse. Plus, with the domestic Australian economy sluggish, asset attractiveness is relatively low, giving capital less reason to stay in AUD.

Another factor is the spillover effect of US policy. US tariffs influence global trade, and a decline in raw material exports directly undermines the AUD’s status as a commodity currency. Whenever the AUD approaches previous high ranges, market selling pressure increases significantly, indicating that market confidence in the AUD remains limited.

Will the AUD reverse? I’ve looked at forecasts from major institutions, which generally fall into optimistic and conservative camps. Morgan Stanley believes it could rise to around 0.72, mainly betting on the RBA maintaining a hawkish stance and commodity prices strengthening. Traders Union’s model suggests it could reach about 0.6875 by the end of 2026. But UBS is more cautious, thinking that global trade uncertainties and Fed policy changes will limit the AUD’s gains, with a forecast around 0.68 by year-end. CBA’s report is particularly interesting, suggesting that the AUD’s rebound might be only temporary, with a peak around March 2026, after which it could decline again.

My own view is that for the AUD to truly turn bullish, three conditions need to be met simultaneously: the RBA returning to a hawkish stance, a substantial improvement in Chinese demand, and a structural weakening of the US dollar. Currently, these three conditions are not yet fully in place. In the short term, the AUD might fluctuate between 0.68 and 0.70, heavily influenced by Chinese data and US non-farm payrolls. It’s unlikely to crash sharply because Australia’s fundamentals remain relatively stable, but don’t expect it to surge to 1.0 either—structural US dollar advantages are still present.

In the long run, the opportunity for the AUD depends on the revival of Australia’s resource exports and commodity cycle. If you’re interested in forex trading, the AUD/USD is relatively accessible due to high liquidity and predictable volatility. You can participate through margin trading, supporting both long and short positions. Just remember to manage risks carefully, as forex trading is inherently high-risk.