## The Truth Behind the Continuous Depreciation of the Australian Dollar: A Global Strong Dollar Cycle Battle

As the fifth most traded currency globally, the AUDUSD currency pair ranks among the top five most active trading pairs worldwide. Its liquidity and low transaction costs make it a common choice for short-term speculators and long-term investors alike.

However, the performance of the Australian dollar over the past decade has been disappointing. From a level of 1.05 in early 2013 to today, the AUD has depreciated by over 35% against the US dollar, while the US dollar index has risen by 28.35% during the same period. This is not an isolated issue for the AUD—major currencies like the euro, yen, and Canadian dollar are also facing depreciation against the dollar, reflecting a global shift into a strong dollar cycle.

## Why Has the Australian Dollar Become the "Weakest Among Commodity Currencies"?

Australia's economy is highly dependent on commodity exports, with iron ore, coal, copper, and other resources forming the core of its economic activity. This has led to the AUD being classified as a "commodity currency," with its exchange rate closely tied to global raw material prices. As long as international commodity prices fluctuate, the AUD often experiences significant volatility.

Over the past ten years, the decline of the AUD has been driven by several factors:

**Deterioration of the Global Trade Environment**: U.S. tariffs and trade tensions have disrupted the global trade system, leading to decreased demand for Australia's key exports like metals and energy, directly weakening the AUD's commodity currency status.

**Divergence in Central Bank Policies**: The Federal Reserve has maintained high interest rates for an extended period, while the Reserve Bank of Australia (RBA) has gradually considered easing monetary policy under economic pressure. The narrowing or even inversion of interest rate differentials has reduced the attractiveness of the AUD as a high-yield currency.

**Domestic Economic Weakness**: Slow domestic growth and declining asset attractiveness have accelerated capital outflows, further depressing the AUD.

In Q4 2024, the AUD/USD fell approximately 9.2%, and in early 2025, amid escalating trade tensions, the AUD even touched a five-year low of 0.5933.

## Three Key Factors That Will Determine Whether the AUD Can Rebound

### First: The Policy Stance of the Reserve Bank of Australia

In November, the RBA kept the benchmark interest rate unchanged at 3.6%, signaling caution. The Consumer Price Index (CPI) for Q3 rose by 1.3% month-over-month, exceeding market expectations and previous levels, indicating persistent inflation. The central bank emphasized that core inflation pressures in housing construction and services sectors are above expectations, and it will only consider further easing once inflation enters a sustainable downward trajectory.

This shift in stance has led to a clear market expectation of less likelihood of rate cuts by the RBA. Notably, a change in the central bank's tone often short-term boosts the AUD, as it makes the currency more attractive compared to those still easing or not yet cutting rates.

### Second: Changes in the Strength of the US Dollar

In October, the Federal Reserve cut the federal funds rate by 25 basis points to 3.75%-4.00%, marking the second rate cut of the year. However, subsequent comments from Fed Chair Powell dampened expectations of further easing.

Despite ongoing discussions about dollar depreciation and de-dollarization, the US dollar index (DXY) has shown unexpected resilience since rebounding from summer lows near 96. It has already rebounded about 3%, with the probability of breaking above the psychological level of 100 increasing. As an inversely correlated asset, a stronger dollar will inevitably put downward pressure on the AUD.

### Third: The Degree of Recovery in the Chinese Economy

China is Australia's largest trading partner, making the health of the Chinese economy crucial for the AUD. Demand for raw materials like iron ore, coal, and natural gas directly influences Australia's export prices and volumes.

When China's economy performs strongly and resource consumption is vigorous, Australia's commodity export prices and sales tend to rise, boosting confidence in the AUD. Conversely, if China's recovery slows and the property market remains sluggish, expectations for raw material demand will weaken, removing a key support for the AUD.

## Diverging Forecasts from Financial Institutions

Major institutions have differing views on the AUD's future:

**Morgan Stanley** remains optimistic, expecting the AUD/USD to rise to 0.72 by the end of 2025. This outlook is based on the possibility that the RBA will maintain a hawkish stance, supported by commodity prices.

**UBS** adopts a more cautious view. While acknowledging Australia's economic resilience, it believes global trade uncertainties and potential shifts in Fed policy will limit the AUD's upside, with a forecast around 0.68 by year-end.

**Economists from the Commonwealth Bank of Australia** issue more warnings. They believe the recent AUD rally may be temporary, predicting a peak around March 2026, with a possible decline by the end of the year. Although the dollar may weaken in 2025, as the US economy outperforms other major economies, the dollar could eventually strengthen again.

## Major Forex Pair Forecasts for the AUD

### Short-term Outlook for AUD/USD

Currently, the AUD/USD hovers around 0.65. In the near term, it is expected to fluctuate between 0.63 and 0.66. If inflation data continues to improve and economic fundamentals remain stable, the AUD may test resistance at 0.66. However, if global risk appetite deteriorates or the dollar re-strengthens, the pair could fall to 0.63 or lower.

Key influencing factors include US economic data (GDP, non-farm payrolls), Australian CPI and unemployment figures, and developments in global trade.

### AUD/CNY Analysis

The stability of Sino-Australian trade is critical for this currency pair. The Chinese yuan is heavily influenced by Chinese central bank policies and US-China relations. Recent yuan movements will be a significant driver for AUD/CNY.

Given relatively soft Chinese economic data but potential progress in US-China trade negotiations, the AUD/CNY is expected to fluctuate within 4.6-4.75 over the next 1-3 months. If the yuan weakens due to domestic economic pressures, AUD/CNY could temporarily rise toward 4.8.

### AUD/MYR Trends

Malaysia's economy also relies on exports and raw materials, with the ringgit sensitive to commodity prices. If global demand remains stable, the ringgit may strengthen. Weakness in the Australian economy will limit the AUD's rebound potential.

Forecasts suggest AUD/MYR will oscillate between 3.0 and 3.15 amid global economic uncertainties. If Australia's economic data deteriorates further, it could test support around 3.0.

## Practical Trading Recommendations for Investors

**Short-term Strategy (1-3 days)**: Use range trading between 0.6370 and 0.6450. If the AUD breaks above 0.6450 and stabilizes, consider a small long position targeting the 200-day moving average at 0.6464 and the psychological level at 0.6500. Trigger factors include weaker-than-expected US economic data (implying possible rate cuts) or higher-than-expected Australian CPI. Stop-loss at below 0.6420.

A short position can be taken if the AUD falls below support at 0.6373, aiming for 0.6336 or even 0.6300. Triggered by strong US data or cooling inflation in Australia, with a stop-loss above 0.6400.

**Medium-term Strategy (1-3 weeks)**: Follow trend signals. Bullish scenario: Fed rate cuts intensify, Australian inflation softens, and trade tensions ease, pushing the AUD toward 0.6550-0.6600. Bearish scenario: US economic resilience exceeds expectations, the dollar rebounds, and trade tensions escalate, with the AUD dropping toward 0.6250.

**Long-term Holding**: Investors optimistic about the AUD long-term can build positions gradually at lows, smoothing out volatility over time, especially after confirming an uptrend.

## Key Conclusions

Forecasting the AUD's movement is challenging due to multiple variables acting simultaneously. Currently, AUD/USD is in a phase of technical oscillation amid fundamental battles. In the short term, focus on range trading and follow the breakout trend. The medium to long-term direction ultimately depends on two factors: whether the Fed's policy shift proceeds as expected, and whether global trade risks truly ease.

If upcoming data this week reinforces market expectations of Fed rate cuts, the AUD can be positioned for long entries. Conversely, caution is warranted against dollar rebound pressures. Traders should closely monitor market sentiment around key economic releases and adjust positions flexibly, avoiding being misled by single-factor volatility.

The AUD's exchange rate fluctuations create opportunities for investors but also carry risks. All forex trading involves the possibility of losses; investors should fully understand their risk tolerance before trading.