Recently, more and more people have been asking what's going on with the Australian dollar and why its depreciation has been so severe. I took a close look at the data and discovered that the story behind it is much more complex than it seems.

As the sixth most traded currency in the world, the Australian dollar was once seen as a high-yield currency and a favorite for carry trades. But if you extend the timeline over the past ten-plus years, you'll notice a painful phenomenon: each high point of the AUD has been lower than the previous one, with an overall trend clearly weakening. Starting from a high near 1.05 in early 2013, it has now depreciated over 35%. What exactly has happened behind this?

My observation is that the main reason for the AUD's depreciation isn't solely due to problems with the currency itself; largely, it's because the US dollar has been too strong. Over the past decade, the dollar index has risen by more than 28%, and the euro, yen, and Canadian dollar have all depreciated against the dollar as well. This is a comprehensive strong dollar cycle. So, the weakness of the AUD is actually relative weakness.

Starting from 2024, the situation has changed. With the rebound in commodity prices like iron ore and gold, and market expectations of the Fed cutting interest rates, the dollar index has retreated from its highs, and the AUD has begun to show a clear rebound. As of 2026, although the AUD is still well below its past highs above 1.0, it has recovered quite a bit from the lows of 2022-2023.

However, there's an interesting phenomenon: whenever the AUD approaches previous high zones, selling pressure increases significantly, indicating that market confidence in the AUD remains limited. Why is that? I believe there are three main reasons.

First, the interest rate advantage is no longer as strong as before. The Reserve Bank of Australia (RBA) currently has a cash rate around 4%, but compared to the period of 2009-2011, the interest rate differential favoring the AUD over the dollar has become much more moderate. The previous appeal of "significantly higher than the dollar" has faded, so attracting capital through interest rate differentials is less effective now.

Second, the drag of a strong dollar still persists. The dollar index remains structurally strong, which is a major backdrop, making it difficult for the AUD to stand alone.

Third, 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, and raw material exports have declined, directly impacting the AUD's status as a commodity currency.

Therefore, from a medium- to long-term perspective, the AUD now resembles a currency with rebounds but lacking a clear trend. To judge whether the AUD will rise again, I believe three key factors need to be monitored.

First is the policy stance of the RBA. As long as the RBA remains more hawkish than expected and maintains relatively high interest rates, the AUD could rebuild its interest rate advantage. Conversely, if rate cuts exceed expectations, the AUD's attractiveness will weaken again.

Second is China's economy and commodity prices. This is an external engine for the AUD. If China's stimulus policies are effective and domestic demand picks up, leading to rising prices for iron ore and other commodities, the AUD will gain substantial support.

Third is the trend of the US dollar and global risk sentiment. The Fed's policy cycle remains a leading indicator of global risk appetite. When markets enter risk-on phases and the dollar retreats, capital is more willing to allocate into commodity currencies. Conversely, if geopolitical risks rise, capital tends to flow back into the dollar.

Looking at forecasts from major institutions, Morgan Stanley and Goldman Sachs are relatively optimistic, believing that if the US economy experiences a soft landing and the dollar index declines, it will benefit commodity currencies like the AUD. Deutsche Bank's target price for the end of 2026 is 0.76, optimistic about resilient global economic growth and commodity demand. But some institutions are more cautious, warning that interest rate differentials pose significant downside risks, and the AUD may struggle to sustain high levels.

Honestly, the phenomenon of AUD depreciation is unlikely to fundamentally change in the short term. Instead of trying to precisely predict the AUD's movements, it's better to treat AUD/USD as a range-bound commodity currency, focusing on entry and exit points at the range boundaries and risk management. Most traders operate this way, using technical indicators for range trading and waiting for macro conditions to truly shift.

In summary, for the AUD to break into a genuine medium- to long-term bull phase, three conditions must be met simultaneously: the RBA remains relatively hawkish, China's demand substantively improves, and the dollar enters a structural weakening phase. Currently, the pressure for the AUD to depreciate remains significant, and it may continue to oscillate within a range in the short term. But in the medium to long term, if these three conditions gradually improve, the AUD indeed has room for a rebound.