Recently, a question has been asked repeatedly: Why has the Australian dollar kept falling? Clearly, it is the sixth-largest currency by global trading volume, so why does it seem to be getting weaker and weaker?

I’ve observed the trend over the past decade and found an interesting phenomenon. The Australian dollar rose to nearly 1.05 in early 2013, then depreciated by over 35%. But this isn’t just an Australian dollar issue; 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, in essence, the main reason for the AUD’s decline is actually the US dollar being too strong, rather than any major problem with the AUD itself.

But why hasn’t the Australian dollar rebounded as strongly as other currencies? I think there are a few key factors dragging it down.

First is the loss of the interest rate differential advantage. The AUD was once called a high-yield currency because Australia’s interest rates have long been significantly higher than the US, attracting a large amount of arbitrage capital. Now, the Reserve Bank of Australia’s (RBA) cash rate is around 4%, which still offers some advantage, but compared to the era of 2009-2011 when the “significantly higher” rates drew in much more interest, its appeal has become much more moderate. This is an important background factor for the AUD’s decline.

Second, the dollar’s strong cycle has not yet fully ended. The overall structure of the US dollar index remains relatively strong, which continues to weigh on all non-US currencies.

Most critically, Australia’s dependence on China is too deep. Australia’s export structure is highly concentrated in iron ore, coal, and energy, with China being the largest buyer. In recent years, China’s economic data has been below expectations, leading to a decline in raw material exports, which weakens the advantage of the AUD as a commodity currency.

Recently, I’ve seen forecasts for 2024 and beyond that, with commodity prices rebounding and market expectations of the Federal Reserve cutting interest rates warming up, the AUD has indeed experienced a rebound. By 2026, although it’s still far below the past high above 1.0, it has recovered quite a bit from the lows of 2022-2023. The problem is, every time the AUD approaches previous high zones, selling pressure clearly increases, indicating that market confidence in it remains limited.

From institutional forecasts, Morgan Stanley is optimistic about Australia’s fundamentals, with a target price of up to 0.725. Goldman Sachs has raised its forecast range for the next 3 to 12 months to 0.72–0.74. Deutsche Bank even sees 0.76. But all these optimistic predictions are based on a premise: a soft landing of the US economy, a decline in the dollar index, and resilient global economic growth.

For the AUD to truly enter a medium- to long-term bullish phase, I believe three conditions must be met simultaneously: the RBA maintaining a relatively hawkish stance, a substantial improvement in Chinese demand, and a structural weakening of the US dollar. If only one or two of these are achieved, the AUD is more likely to stay in a range-bound oscillation rather than a one-way upward trend.

Frankly, rather than trying to precisely predict the AUD’s movement, it’s more practical to treat it as a commodity currency oscillating within a range, using technical indicators for range trading. After all, the AUD has high liquidity and strong volatility patterns, making medium- to long-term trend judgments relatively easier to grasp. If you’re interested in trading AUD/USD, many forex platforms now offer tools to help you identify trading opportunities without needing to download complex software.