Lately, I've been watching the trend of the Australian dollar. To be honest, the performance of the Australian dollar over the past few years has been somewhat disappointing. As the sixth-largest currency by global trading volume, the AUD was once seen as a high-yield currency representative, but a close look at the K-line chart over the past decade shows that its highs are getting lower and lower, with an overall trend clearly weakening.

What exactly has happened to the AUD? Starting from a high near 1.05 in early 2013, it has depreciated by over 35% to date. During the same period, the US dollar index has risen by more than 28%, and other major currencies like the euro and yen have also depreciated against the dollar. Simply put, the weakness of the AUD is largely due to the strength of the US dollar, and this strong dollar cycle has not yet fully ended.

The situation has changed after 2024. With the rebound in commodity prices such as iron ore and gold, coupled with rising expectations of Fed rate cuts, the AUD has started to rebound from its lows. Entering 2025, short-term forecasts for the AUD remain in relatively high ranges, recovering significantly from the lows of 2022-2023. Interestingly, every time the AUD approaches previous highs, selling pressure increases noticeably, suggesting market confidence in the AUD remains limited.

Why is this happening? There are several main reasons. First, although the Reserve Bank of Australia (RBA) has kept interest rates around 4%, the interest rate differential compared to the past when it was significantly higher than the US dollar has become much less attractive. Second, the strong dollar structure still weighs on the AUD. Additionally, Australia’s exports are highly dependent on China, and in recent years, China’s data has been below expectations, leading to a decline in raw material exports, which has also hurt the commodity currency status of the AUD.

From a medium- to long-term perspective, for the AUD to break out into a genuine bullish trend, three conditions must be met simultaneously. First, the RBA must maintain a relatively hawkish stance to make interest rate differentials a highlight again. Second, China’s demand must materially improve, driving up prices of commodities like iron ore. Third, the US dollar must enter a structural weakening phase. If only one of these conditions is met, the AUD is more likely to fluctuate within a range rather than trend upward unilaterally.

Let’s look at how market institutions view the short-term forecast for the AUD. Deutsche Bank is optimistic about the resilience of the global economy and commodity demand, expecting a target price of 0.76 by the end of 2026. Morgan Stanley believes that if the US economy soft-lands and the dollar index declines, it will benefit the AUD, with a forecast range of 0.72 to 0.74. Goldman Sachs has also raised its forecast for the next 3 to 12 months to 0.72–0.74. UBS expects the RBA to raise interest rates two more times, but economic slowdown will limit the AUD’s upside potential, with forecasts between 0.70 and 0.72. The Commonwealth Bank of Australia warns that interest rate differentials could pose downside risks.

From personal observation, the key to the short-term trend of the AUD still lies in the policy differences between the RBA and the Federal Reserve, with changes in interest rate spreads being the core driver. The long-term bullish outlook comes from the recovery of Australia’s resource exports and commodity cycles. Rather than trying to precisely predict where the AUD will go, it’s better to see it as a commodity currency oscillating within a range, focusing on entry and exit points at the range boundaries and risk management.

The reason the AUD is relatively easy to trade is first because of its high liquidity and strong volatility patterns, and second because of its clear correlation with raw material prices like iron ore and coal, making medium- to long-term trend judgments relatively straightforward. However, the forex market is highly volatile, and short-term predictions are very difficult to be precise about, and that must be acknowledged.