Recently, the topic of the Australian dollar's sharp decline has become a hot discussion again in the market. Speaking of the AUD, many people's instinct is that it should be a "high-yield currency," but in reality, over the past ten-plus years, the AUD has fallen more than 35%. What exactly has happened behind this is worth a closer look.

Starting from early 2013, when the AUD was near 1.05 at a high point, over the past decade, the main reason for the AUD's significant decline isn't entirely an issue with the currency itself; often, it's because the US dollar was too strong. During the same period, the US dollar index rose by over 28%, and the euro, yen, and Canadian dollar also depreciated against the dollar. This indicates that the AUD's weakness is actually part of a global strong dollar cycle.

Will the AUD rebound? My observation is that after 2024, there has indeed been a rebound. As the prices of major commodities like iron ore and gold recover, combined with market expectations that the Federal Reserve may cut interest rates and the US dollar index has retreated from high levels, the AUD has begun a noticeable recovery from its lows. This year, the situation of the AUD's sharp decline has improved, mostly staying within a relatively higher range compared to the past few years.

But here’s a key issue: whenever the AUD approaches previous high zones, selling pressure clearly increases, indicating that market confidence in the AUD remains limited. I think there are several main reasons. First, the interest rate advantage of the AUD is no longer as obvious as before. In the past, Australian interest rates were significantly higher than those in the US, attracting large amounts of hot money for carry trades, but now, although the Reserve Bank of Australia's cash rate remains around 4%, the gap with US rates isn't as wide. Second, the drag from the strong dollar cycle persists; the dollar remains structurally strong, and as a commodity currency, the AUD finds it hard to stand alone.

Another very important factor is Australia's dependence on China. Australia's export structure is highly concentrated in iron ore, coal, and energy, with China being the largest buyer. However, in recent years, China's economic data has been below expectations, leading to a decline in raw material exports, which directly impacts the AUD's status as a commodity currency.

Therefore, from a medium- to long-term perspective, the AUD is more like a "rebound but lacking a clear trend" currency, easily influenced by external factors rather than driven by its own fundamentals.

What are the key factors for the medium- to long-term trend of the AUD? I believe there are three main factors worth paying attention to. First is the RBA's monetary policy; as long as the RBA remains more hawkish than expected and maintains relatively high interest rates, the AUD could rebuild its interest rate advantage. Second is China's economy and commodity prices, which are the core external drivers for the AUD. If China's subsequent stimulus policies are effective and domestic demand rebounds, iron ore prices will rise, providing substantial support for the AUD. Third is the US dollar trend and global risk sentiment. When markets enter a risk-on phase and the US dollar index declines, capital is usually more willing to allocate to commodity currencies. Conversely, if global economic concerns intensify and geopolitical risks increase, capital tends to flow back into the dollar.

Recently, I’ve seen forecasts from several institutions. Morgan Stanley is optimistic about the AUD'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 predicts it could reach 0.76 by the end of 2026. The common basis for these optimistic forecasts is the assumption of a soft landing for the US economy and a retreat in the US dollar index, which would favor commodity currencies like the AUD. But there are also more cautious voices; for example, the Commonwealth Bank of Australia believes that the interest rate differential poses significant downside risks, and the AUD may struggle to sustain high levels.

My personal view is that for the AUD to truly break out into a medium- to long-term bull trend, three conditions must be met simultaneously: the RBA remains relatively hawkish, China's demand substantially improves, and the US dollar enters a structural weakening phase. If only one of these is present, the AUD is more likely to stay in a range-bound oscillation rather than trend upward unilaterally. In the short term, the hawkish stance of the RBA and strong commodity prices will provide support, but in the medium to long term, global economic uncertainties and the risk of a US dollar rebound should be closely watched.

Therefore, I currently see the recent rebound after the AUD's sharp decline as a range-bound oscillation of a commodity currency, with the key being to identify entry and exit points at the boundaries of the range and to manage risks well. Due to its high liquidity, strong volatility patterns, and economic structure, the medium- to long-term trend judgment for the AUD is relatively straightforward, but short-term predictions still require caution.