Can the Australian dollar still rebound? Analyzing the future direction of AUD/USD from a commodity currency perspective

The Australian dollar was once a favorite among investors— as the fifth-largest currency by global trading volume, AUD/USD offers ample liquidity and tight spreads, making it a popular choice for many traders. However, over the past decade, this once-glamorous commodity currency has become increasingly less attractive. From an initial 1.05 in early 2013 to falling below 0.60 today, what has the Australian dollar experienced? Is there still a chance for a rebound in the future?

Why Has the AUD Been Weakening? Three Fundamental Reasons

Commodity Price Declines Hit the Fundamentals of Commodity Currencies

Australia’s economy heavily relies on exports of iron ore, coal, copper, and other bulk commodities. This determines the fate of the AUD—any fluctuation in global raw material prices causes sharp swings in the exchange rate. Over the past ten years, this period coincided with a sluggish global commodity cycle. When commodity prices fall, Australia’s export income decreases, naturally reducing demand for the AUD.

Data shows that from 2013 to 2023, the AUD/USD depreciated by over 35%, while the US dollar index rose by 28.35%. This is not just an AUD issue; the euro, yen, and Canadian dollar also depreciated against the dollar, reflecting a global strong dollar cycle.

Persistent Strength of the US Dollar Limits AUD Rebound Space

In Q4 2024, the AUD/USD fell approximately 9.2% for the year. Entering 2025, amid rising global trade tensions, the AUD once dropped to 0.5933, hitting a five-year low. The chain reaction of US tariff policies primarily hit Australia’s metal and energy exports, directly weakening the commodity currency nature of the AUD.

More importantly, the interest rate differential between the US and Australia remains difficult to reverse. Australia’s domestic economic growth has slowed, reducing asset attractiveness, and international capital prefers to stay in dollar assets. As long as the dollar remains strong, the AUD lacks a solid foundation for upward movement.

High-Yield Currency Aura Fades, Carry Trade Appeal Diminishes

The AUD was once the most popular target for carry trades globally, but as the interest rate differential narrows, this advantage has vanished. The Reserve Bank of Australia (RBA) has repeatedly delayed rate cuts, but market expectations for further easing are cooling, depriving the AUD of sustained attractiveness.

Where Is the Rebound Opportunity for the AUD? September’s Market Gives the Answer

A rapid rebound in September 2025 provides key clues. The AUD/USD once rose to 0.6636, reaching a new high since November 2024. Behind this rally, three main drivers stood out:

Surge in Iron Ore and Gold Prices

This directly benefits Australia’s export income outlook. When commodity prices rise, the overall Australian economic outlook becomes more optimistic, providing strong support for the AUD.

Market Expectations of Fed Rate Cuts Rise

Signals from the Federal Reserve about rate cuts prompted funds to flow from the dollar into risk assets. In this environment, the AUD, as a risk currency, gained a breather.

Improved Market Risk Sentiment

Trade war fears gradually eased, and investors began reassessing the value of Australian assets.

However, the good times didn’t last. By October, although the AUD remained above 0.64, the rebound momentum weakened significantly. This indicates that the factors supporting the AUD’s rise are unstable.

Three Key Variables That Will Decide the AUD’s Future Direction

First Barrier: Australia’s Inflation and Central Bank Stance

In Q3 2025, Australia’s CPI rose by 1.3% month-over-month, exceeding market expectations and dispelling hopes of further rate cuts by the RBA. The RBA explicitly stated that only once inflation is confirmed to be on a sustainable downward track will it consider easing monetary policy.

This suggests that in the short term, the RBA may maintain a hawkish stance, providing some support to the AUD. But if inflation surges again, the RBA might be forced to adopt more aggressive tightening measures, which could further slow economic growth and negatively impact the AUD.

Second Barrier: US Federal Reserve Policy Direction

In October, the Fed announced a 25 basis point rate cut to a 3.75%-4.00% range, but Chair Powell’s cautious signals cooled market expectations for further rate cuts in December. The US dollar index, after bottoming near 96 in summer, has rebounded about 3%, with the possibility of breaking above the key psychological level of 100 increasing.

The general rule is: when the dollar strengthens, the AUD tends to weaken. If the Fed slows its rate hike cycle, the dollar is likely to remain strong, exerting continued pressure on the AUD.

Third Barrier: China’s Economic Recovery Strength

Australia is a typical “China economic barometer.” The health of China’s economy directly influences demand for key raw materials like iron ore, coal, and natural gas. In October, China’s services PMI fell to 52.6, and the property market remained sluggish, casting a shadow over Australia’s export prospects.

If China’s recovery slows, the AUD will lose its most important support pillar. Conversely, as long as Chinese demand remains stable or picks up, the AUD can sustain its fundamental support.

Divergent Views Among Financial Institutions on AUD’s Outlook

Regarding the future of the AUD, there are mainly three perspectives:

Bullish: Morgan Stanley expects the AUD/USD to rise to 0.72 by year-end, citing the RBA’s hawkish stance and rising commodity prices.

Neutral: UBS believes that despite Australia’s resilience, global trade uncertainties and Fed policy shifts will limit the AUD’s upside, projecting around 0.68 by year-end.

Bearish: CBA Economists warn that the AUD’s recovery may be short-lived, with a high point around March 2026, followed by a decline as US economic growth ultimately surpasses other major economies, potentially strengthening the dollar again.

These differing views reflect a core contradiction: Australia’s fundamentals support a stronger AUD, but global macroeconomic uncertainties restrict its upward potential.

Forecasts for Major Currency Pairs Against the AUD

AUD/USD: Finding Trading Opportunities Amid Fluctuations

Currently, AUD/USD oscillates between 0.63 and 0.66. If inflation data continues to improve and the Australian economy remains stable, it may test resistance above 0.66. Conversely, if the dollar regains strength or global risk appetite deteriorates, the AUD could fall back to 0.63 or lower.

AUD/CNY: Tracking AUD Movements with Smaller Fluctuations

Stable Sino-Australian trade favors the AUD/CNY, but the Chinese yuan is more influenced by Chinese central bank policies. Over the next 1-3 months, AUD/CNY may fluctuate between 4.6 and 4.75. If the yuan weakens due to domestic economic pressures, AUD/CNY could briefly rise toward 4.8.

AUD/MYR: Regional Economic Differences Are Key

The Malaysian ringgit is sensitive to commodity prices, and a sluggish Australian economy may limit AUD’s rebound. Expect AUD/MYR to fluctuate between 3.0 and 3.15. If Australian economic data worsens further, it could test support near 3.0.

Trading Strategies for Different Timeframes

Short-term (1-3 days): Range Trading

Key support at 0.6370, resistance at 0.6450. A break above 0.6450 suggests a long position targeting the 200-day moving average at 0.6464 and the psychological level at 0.6500. A break below 0.6373 indicates a short position aiming for 0.6336 or even 0.6300. Before major data releases, reduce positions or stay on the sidelines to avoid volatility.

Medium-term (1-3 weeks): Trend-following

Bullish scenario depends on rising Fed rate cut expectations and easing trade tensions, with targets around 0.6550-0.6600. A confirmed breakout above the 200-day moving average signals a trend reversal. Bearish scenario involves resilient US economy, delayed Fed easing, and dollar rebound, with potential dips toward 0.6250 within the year.

Long-term Positioning: Dollar-cost Averaging

If bullish on the AUD long-term, current lows are good entry points for phased accumulation. Using time to smooth out market volatility, especially after trend confirmation, is advisable.

Risks and Opportunities in AUD Trading

AUD/USD exhibits sufficient volatility, presenting both risks and opportunities. Forex margin trading allows for long and short positions, leveraging to amplify gains, with relatively low entry barriers suitable for small and medium investors.

However, it’s crucial to recognize: all investments carry risks. Forex trading is a high-risk activity, and investors may lose all capital. Establish strict risk management, set reasonable stop-loss levels, and avoid blindly pursuing high leverage.

Summary and Outlook

The future of the AUD depends on the interplay of three factors: Australia’s inflation and economic data, Fed policy stance, and the global trade environment. In the short term, the AUD may continue to fluctuate between 0.63 and 0.66 without a clear trend.

Traders should closely monitor weekly economic releases, especially US GDP, non-farm payrolls, and Australia’s CPI, as these will directly influence market sentiment and the AUD’s direction. Before clear breakout signals emerge, exercise caution. Once a definitive trend is confirmed, act decisively. This is the correct approach to navigating AUD volatility.

Currently, the AUD remains in a bottom zone, but the sustainability of the rebound remains to be seen. Proper risk management in every trade is the key to ultimate success.