I’ve been watching the Australian dollar’s trend recently and found the story behind this currency pair quite interesting. As the fifth-largest traded currency globally, the AUD/USD pair is indeed quite active, with strong liquidity and low spreads—whether you’re looking at short-term trades or long-term positioning, there are people playing it. But have you noticed that over the past decade, the AUD has been trending downward?

Why is the AUD so weak? It’s not complicated. Australia’s economy relies heavily on bulk commodity exports such as iron ore, coal, and copper, so the AUD is known as a “commodity currency.” This means that whenever global raw material prices move, the AUD exchange rate also swings significantly. From the level of 1.05 at the start of 2013, over the past ten years the AUD has depreciated by more than 35%, while the US Dollar Index has risen by 28% over the same period. The euro, the Japanese yen, and the Canadian dollar versus the US dollar have also all depreciated, indicating a broad strong-US-dollar cycle that the AUD simply can’t escape.

In Q4 2024, the AUD fell sharply, with a full-year decline of about 9.2%. Entering early 2025, driven by rising global trade war tensions and growing worries about an economic recession, the AUD at one point slid to 0.5933, setting a five-year low. Analysts generally agree that US tariff policies have hurt global trade, leading to a decline in raw material exports; the AUD’s commodity-currency attribute becomes a burden instead. On top of that, the interest-rate differential between the US and Australia is difficult to reverse, Australia’s domestic economy remains sluggish, and capital continues to flow out.

However, things started to turn around around the middle of last year. Iron ore and gold prices surged, and with market expectations that the Federal Reserve would cut rates, investors’ risk appetite increased, and the AUD rebounded along with it. By September, the AUD/USD had risen to as high as 0.6636, its highest level since November 2024. The question then is: can the AUD keep rising and climb back?

I think it depends on three key factors. First is Australia’s own economic situation. In Q3 of last year, CPI rose 1.3% quarter-on-quarter (QoQ), exceeding market expectations. The Reserve Bank of Australia emphasized that inflation pressure in the housing and services sectors is more difficult to cool than previously imagined. This suggests the central bank is unlikely to cut rates significantly in the short term and may instead maintain a hawkish stance, which supports the AUD.

Second is the trajectory of the US dollar. Although the Fed is easing, Chair Powell’s signals indicate that the pace of rate cuts may slow down. The US Dollar Index rebounded by about 3% from around 96 in the summer, and the likelihood of breaking above the psychological level of 100 is increasing. Generally speaking, when the US dollar is strong the AUD tends to be weak—so they are inversely correlated.

Third—and most critical—is China’s economy. Australia’s exports of iron ore, coal, and natural gas are mainly sold to China, so how well China’s economy is doing directly determines demand for these commodities. Last year, China’s economic recovery slowed, and the real estate market remained under pressure, which made the market worry about long-term demand for raw materials—causing the AUD to lose an important support.

Major financial institutions also don’t have consistent views on the AUD’s future. Morgan Stanley is more optimistic, expecting the AUD could rise to 0.72 by year-end, mainly betting on the Reserve Bank of Australia maintaining a hawkish stance and commodity prices strengthening. But UBS is more cautious, saying uncertainty in the global trade environment is too high and expecting the exchange rate to stay around 0.68 by year-end. Some institutions are even more conservative, arguing that the AUD’s rebound may be temporary and that after peaking around March 2026 it will fall again.

From a technical perspective, the AUD/USD is currently trading in a 0.63 to 0.66 range. In the short term, if inflation data continues to come in favorably and the economy remains stable, the AUD may try to test above 0.66. But if global risk appetite deteriorates or the US dollar strengthens again, the AUD could fall back to 0.63 or even lower. The medium-term direction mainly depends on Fed policy signals and whether global trade risks ease.

From an investment perspective, my advice is as follows. In the short term, focus mainly on range trading, operating between 0.6370 and 0.6450, and if there is a breakout, follow the move. If you’re bullish on the AUD’s long-term trend, you can build positions in batches at lower levels, using time to smooth out market volatility. The key is to closely monitor the release of economic data—US GDP, non-farm employment, and Australia’s CPI—because these data will directly affect the direction of the exchange rate.

The AUD exchange rate’s fluctuations are indeed relatively large, which also means there are plenty of trading opportunities. Some investors participate in AUD volatility through foreign exchange trading and take both long and short positions. However, I should remind you: all investments carry risks. Foreign exchange trading is a high-risk investment, and investors could lose all their capital. So no matter how you trade, risk management always comes first. Overall, the AUD is currently in a stage where technical range movement and fundamental factors are in a tug-of-war, so traders need to adjust their strategies flexibly and closely watch changes in market sentiment.