Recently, people have been asking me about the outlook for the Australian dollar, and honestly, this topic is indeed worth a good discussion. Many people have an intuition that the Australian dollar seems to be "getting lower and lower at its peaks," especially over the past decade or so, it appears to be weakening. I’ve organized my observations here.

First, some data: starting from early 2013 when the AUD/USD exchange rate was close to 1.05 at a high point, over the past ten years, the Australian dollar has depreciated by over 35%. But there’s a key point often overlooked — 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, the AUD’s weakness is largely a victim of the global phenomenon of a "strong dollar," rather than a major problem with the AUD itself.

So why does the AUD continue to face pressure? I see several main reasons. The first is that the interest rate differential advantage is no longer as prominent. The AUD was once considered a "high-yield currency," mainly because Australia’s interest rates have long been significantly higher than those in the US. Currently, the Reserve Bank of Australia’s cash rate is around 4%, which still provides some support, but compared to the obvious "much higher" levels in 2009-2011, its attractiveness has become much more moderate.

The second reason is Australia’s dependence on China. Australia’s export structure is highly concentrated in iron ore, coal, and energy, with China long being the largest buyer. In recent years, China’s economic performance has been less than expected, with demand for raw materials declining, directly impacting the AUD’s status as a "commodity currency." Therefore, the AUD’s trajectory is largely tied to China’s economic health.

The third reason is that the ongoing strong dollar cycle continues to drag on. The US dollar index remains in a relatively strong structure, and the AUD is just one of many major currencies affected.

Recently, I noticed that the AUD has indeed rebounded from its lows, especially after 2024, as the prices of bulk commodities like iron ore and gold have risen, and market expectations for Fed rate cuts have increased. The AUD has started to recover from its lows. As of mid-2026, although it’s still far below the past high above 1.0, it has already shown a clear improvement compared to the lows of 2022-2023.

But here’s an interesting phenomenon — whenever the AUD approaches previous high zones, market selling pressure increases significantly. This indicates that market confidence in the AUD remains limited. The current outlook for the AUD looks more like a "rebound without a clear trend."

I think for the AUD to truly break into a strong bullish phase, three conditions need to be met simultaneously: the RBA remains relatively hawkish, China’s demand substantively improves, and the dollar enters a structural weakening phase. If only one of these is present, the AUD is more likely to stay in a range rather than trend upward unilaterally.

Let’s look at forecasts from major institutions. Morgan Stanley is optimistic about Australia’s fundamentals, expecting a target of up to 0.725 by the end of the year. Goldman Sachs recently raised its forecast range for the next 3 to 12 months to 0.72–0.74. Deutsche Bank predicts it could reach 0.76 by the end of 2026. The common logic behind these optimistic forecasts is that if the US economy soft-lands and the dollar index declines, commodity currencies like the AUD will benefit.

But I also see some cautious voices. UBS expects the RBA to raise rates two more times, but economic slowdown could limit the AUD’s upside. Commonwealth Bank of Australia points out that the interest rate differential poses significant downside risks, and the AUD may struggle to sustain high levels.

Honestly, rather than trying to precisely predict the AUD’s direction, it’s better to view the AUD/USD as a commodity currency that fluctuates within a range. The key is to focus on entry and exit points at the range boundaries and risk management. Short-term pressures mainly come from RBA and Fed policy changes, with interest rate differentials being the main drivers. Long-term bullish factors include Australia’s resource exports and commodity cycles.

Because of its high liquidity, strong volatility patterns, and its economic structure, the AUD’s medium- to long-term trend is relatively easier to judge. Although forex markets are volatile and predicting exchange rates accurately is challenging, the AUD remains a currency worth paying close attention to.