I’ve been paying close attention to the outlook for the Australian dollar recently and found that many people actually misunderstand the trend of the AUD. As the world’s sixth-largest trading currency, the Australian dollar has been in decline for the past decade or more—so what exactly is behind this?

I noticed that from early 2013, when the AUD/USD exchange rate hovered near a high of around 1.05, it has depreciated by more than 35% over the past ten years. But this isn’t entirely an issue with the Australian dollar itself; to a large extent, it’s because the US dollar is simply too strong. Over the same period, the US Dollar Index rose by 28%, while the euro, the yen, and the Canadian dollar also weakened against the US dollar. This suggests that the AUD’s weakness is actually part of a broader global strong-US-dollar cycle.

The reason the Australian dollar was once called a high-interest-rate currency is mainly that Australia’s interest rates have long been clearly higher than those in the United States, making carry trades particularly popular. But now, the Reserve Bank of Australia’s cash rate is around 4%, and the gap versus US interest rates is no longer as obvious. On top of that, China’s economy has been sluggish in recent years. Australia’s export structure is highly dependent on major commodities like iron ore and coal. As Chinese demand declines, it directly undermines the Australian dollar’s status as a commodity currency.

To be honest, the key to the AUD’s outlook lies in the interaction of three factors. First is the RBA’s interest-rate policy: if the central bank maintains a relatively hawkish stance, the advantage of the interest-rate differential can regain its appeal. Second is China’s economy: if subsequent stimulus policies prove effective and domestic demand rebounds, iron ore prices would rise, giving the Australian dollar real support. Third is the US dollar’s trend—the Fed’s policy cycle determines where global capital flows.

After 2024, as commodity prices recovered and market expectations for Fed rate cuts heated up, the Australian dollar indeed bounced back from the lows. Entering 2026, even though the Australian dollar is still far below the historical highs above 1.0 in the past, it has already shown a clear recovery compared with the lows of 2022 to 2023. However, every time the Australian dollar approaches the prior high zone, sell pressure increases—suggesting that market confidence in the Australian dollar remains limited.

Judging from institutional forecasts, Deutsche Bank sets a target price of 0.76 by the end of 2026, believing that resilience in global economic growth and demand for commodities will support the Australian dollar. Morgan Stanley expects it to be in the range of 0.72 to 0.74. But some institutions are more cautious, arguing that the interest-rate differential could create downside risks, making it difficult for the Australian dollar to sustain high levels.

My own view is that short-term pressure on the Australian dollar mainly comes from the policy differences between the Reserve Bank of Australia and the Fed, with changes in the interest-rate differential becoming the key driver. The long-term bullish case is that Australia’s resource exports and the commodity cycle will recover. Rather than trying to predict the Australian dollar’s direction precisely, it may be better to treat it as a commodity currency that oscillates within a range—focusing on entries and exits at the range boundaries and managing risk.

Most traders use technical indicators such as the 200-day moving average, RSI, and MACD to trade within ranges. Because the Australian dollar has high liquidity and fairly consistent volatility patterns, it’s relatively easy to learn to judge medium- to long-term trends. Of course, all investing involves risk, and foreign-exchange trading is inherently high-risk—so proper risk management is essential.