I’ve been closely watching the trend of the Australian dollar and noticed an interesting phenomenon: over the past more than ten years, the AUD seems to have been weakening, with its highs getting lower and lower. As the sixth most traded currency globally, the Australian dollar was once seen as a representative high-yield currency—the darling of carry trades—but its appeal is clearly not what it used to be.

I stretched the timeline and took a closer look. Starting from early 2013, when the AUD against the US dollar approached a high of nearly 1.05, to around 2023—over these ten years, the Australian dollar depreciated by more than 35%. Over the same period, the US dollar index rose by 28.35%, and the euro, yen, and Canadian dollar also all weakened to varying degrees. So, put simply, when the AUD is weak, it is often simply because “the US dollar is too strong”—this is a broad-based strong US dollar cycle. Even if the AUD rebounds, it’s still difficult to hold at higher levels.

After 2024, things began to change somewhat. As prices of key commodities such as iron ore and gold rebounded, and market expectations for the Federal Reserve to cut interest rates heated up, the US dollar index fell back from its highs, and the Australian dollar began to show a clear rebound from its lows. Throughout most of 2025, it stayed in a relatively high range compared with the past few years. Entering 2026, although the AUD remains far below its historical highs above 1.0 from earlier periods, it has already made a significant recovery compared with the lows in 2022 to 2023.

But there’s an interesting pattern here: whenever the Australian dollar approaches the prior high range, market selling pressure increases noticeably. This suggests that funds’ confidence in the AUD is still limited. Why is that? I think there are several main reasons.

First, the interest-rate advantage is no longer as obvious as before. The Reserve Bank of Australia’s cash rate is currently around 4%, and over the past few quarters it has maintained a relatively hawkish posture, which provides some support for the Australian dollar. However, compared with the period from 2009 to 2011, when the rate advantage was clearly “much higher than the US dollar,” the appeal is already only moderate. Second, the drag from the strong US dollar cycle is still there. The US dollar index is in an overall relatively strong structure, and most major currencies have depreciated against the US dollar to different degrees—the AUD is just one of the casualties.

Another key factor is Australia’s dependence on China. Australia’s export mix is highly concentrated in iron ore, coal, and energy, and China has long been its largest buyer. In recent years, China’s data has not met expectations as well, raw material exports have declined, and this has dealt a blow to the AUD’s status as a commodity currency.

From a medium- to long-term perspective, the Australian dollar is more like a currency that has “rebound potential but lacks a clear trend.” In the absence of clear growth momentum and a strong interest-rate advantage, the AUD’s direction is more easily influenced by external factors than driven by its own fundamentals.

To judge whether the Australian dollar can truly break into a sustained bullish trend, I think it depends on the interaction of three key factors. The first is RBA interest-rate policy. The AUD has long been viewed as a high-yield currency, and its appeal depends heavily on the interest-rate differential structure. As long as the RBA stays more hawkish than expected and maintains higher rates compared with other major central banks, the Australian dollar has a chance to rebuild part of its interest-rate advantage.

Second is China’s economy and commodity prices. This is the external engine for the Australian dollar. If China’s subsequent stimulus policies prove effective—supporting a rebound in domestic demand and infrastructure—and if prices such as iron ore rise, that typically provides tangible support for the Australian dollar.

Third is the US dollar trend and global risk sentiment. The Fed’s policy cycle remains a leading indicator of global risk appetite. When markets move into a risk-on phase and the US dollar index declines, capital is usually more willing to allocate to commodity currencies. But if doubts about global economic conditions intensify and geopolitical risks rise, capital returns to the US dollar, and the AUD will face pressure even if its fundamentals have not clearly deteriorated.

Right now, energy prices and global demand still don’t look optimistic. Investors tend to choose safe-haven assets rather than pro-cyclical currencies like the Australian dollar, which limits its upside.

Just look at forecasts from major institutions to see the market’s stance. Morgan Stanley is optimistic about the Australian dollar’s fundamentals, expecting a target price of up to 0.725 by year-end. Goldman Sachs has recently raised its forecast range for the next 3 to 12 months to 0.72 to 0.74. Deutsche Bank projects the Australian dollar could reach 0.76 by the end of 2026, believing that resilient global economic growth, strong commodity demand, and a widening interest-rate differential will support the AUD. However, some institutions are more cautious: Australia’s Commonwealth Bank believes the interest-rate differential poses a major downside risk, and the Australian dollar’s high levels may be difficult to sustain.

Based on my own observations, the main short-term pressure on the Australian dollar comes from RBA and Fed policy, with changes in the interest-rate differential becoming the key driver. The long-term positive outlook lies in Australia’s resource exports and the commodity cycle. Rather than trying to predict the AUD’s movements precisely, a more practical approach is to treat the Australian dollar as a commodity currency that oscillates within a range—focus on entries and exits at the range boundaries and manage risk accordingly.

Many traders view the Australian dollar as a commodity currency for “range trading,” using technical indicators to trade within the range. The Australian dollar’s commodity-currency characteristics as a major commodity exporter remain clear, and especially, it is highly correlated with the prices of raw materials such as copper, iron ore, and coal. In the short term, the RBA’s hawkish stance and strong raw-material prices will provide support. But in the medium to long term, it’s important to watch global economic uncertainty and the possibility of a US dollar rebound, as these will limit the Australian dollar’s upside and may also make its price action more volatile.