The truth behind the Australian dollar's continued pressure: Commodity currency dilemma and rebound opportunity analysis

The Australian dollar, as the fifth most traded currency globally (after the US dollar, euro, yen, and British pound), also ranks among the top five currency pairs with the AUD/USD. Thanks to its high liquidity and low spreads, it attracts a large number of short-term traders and medium- to long-term investors.

Interestingly, this once “high-yield currency” has underperformed over the past decade. What are the reasons behind the Australian dollar’s growing weakness? Is there room for a rebound in the future?

Why the AUD Has Become the “Victim of Commodity Currencies”

Australia’s economic structure determines the fate of the AUD. As a commodity currency, Australia heavily relies on exports of iron ore, coal, copper, and other bulk commodities. This means that any fluctuations in global raw material prices can directly impact the AUD exchange rate.

Data shows that in early 2013, the AUD/USD was around 1.05, but over the following ten years (2013-2023), it depreciated by over 35%. During the same period, the US dollar index rose by 28.35%, while the euro, yen, and Canadian dollar also generally weakened against the dollar. This is not an isolated phenomenon for the AUD but reflects the broader cycle of a strong dollar environment.

Entering 2024, the AUD/USD declined by approximately 9.2% for the year, and in early 2025, it even hit a five-year low of 0.5933. Several core factors are identified:

US Tariff Policies Impact Global Trade — The US “reciprocal tariffs” policy has intensified, leading to increased global trade frictions. As a resource-exporting country, Australia’s raw material demand has sharply declined.

Australian-US Interest Rate Differential Difficult to Reverse — Australia’s domestic economic growth remains sluggish, with expectations of rate cuts continuing, while the Federal Reserve’s policy remains relatively tight. The narrowing interest rate gap weakens the AUD’s attractiveness.

Continued Capital Outflows — Australian assets offer relatively low yields, prompting international capital to flow toward higher-yielding markets like the US.

Signs of Rebound Are Emerging, but the Road Is Thorny

Notably, since mid-2025, the AUD has shown positive signals. In September, iron ore and gold prices surged significantly, and expectations of Fed rate cuts increased. The AUD/USD briefly rose to 0.6636, reaching a new high since November 2024.

This rebound reflects market re-pricing of risk assets and optimism about improving global trade conditions. However, whether the AUD can truly “rise back” depends on three key factors:

First, the RBA’s Policy Direction and Inflation Control

In Q3 2025, Australia’s CPI rose by 1.3% month-over-month, exceeding market expectations. The RBA has repeatedly emphasized that core inflation pressures in housing construction and services remain stubborn, and rate cuts will only be considered once inflation enters a sustainable downward trajectory. This suggests that the RBA’s hawkish stance could support the AUD in the short term. Compared to the dovish expectations for the Fed, the AUD appears more attractive.

Second, the Strength of the US Dollar

In October, the Fed completed its second rate cut of the year (a 25 basis point reduction to 3.75%-4.00%), but subsequent statements from Chair Powell dampened expectations of further cuts. The US dollar index rebounded about 3% from its summer low of 96, with the probability of breaking above the psychological level of 100 increasing. Generally, a stronger dollar tends to weaken the AUD, as they tend to move inversely.

Third, the True State of China’s Economic Recovery

China is the largest buyer of Australian resources. The health of China’s economy directly influences demand for Australian iron ore, coal, natural gas, and other key raw materials. When China shows strong recovery, resource exports and prices tend to rise, supporting the AUD. Conversely, if China’s real estate sector remains sluggish and economic growth slows, the AUD will lose important support.

Diverging Forecasts from Financial Institutions

Regarding the AUD’s performance in the second half of 2025, major institutions have differing views:

Morgan Stanley is optimistic, expecting the AUD/USD to rise to around 0.72 by year-end. This outlook is mainly based on expectations of the RBA maintaining a hawkish stance and commodity prices strengthening.

UBS is more cautious, believing that despite resilience in Australia’s domestic economy, global trade uncertainties and potential changes in Fed policy could limit the AUD’s gains, with forecasts around 0.68 by year-end.

CBA economists are the most conservative, suggesting the AUD’s recovery may be short-lived. They predict the AUD/USD will peak around March 2026 but may fall again by the end of 2026. The reasoning is that although the dollar may weaken in 2025, the US economy’s faster growth relative to other major economies could cause the dollar to strengthen again.

AUD vs. MYR: Reflecting Regional Monetary Policy Differences

The AUD/MYR (Malaysian Ringgit) trend warrants separate attention. While the AUD’s movement is a dominant factor, the strength or weakness of the Ringgit itself is also crucial.

Malaysia’s economy also depends on exports and raw materials, making the Ringgit sensitive to commodity prices. If global demand remains stable, the Ringgit may strengthen. Conversely, a weak Australian economy could limit the AUD’s rebound potential. Additionally, Malaysia’s central bank policies are relatively stable and may maintain or tighten, and if interest rate differentials widen, the Ringgit could strengthen, putting downward pressure on the AUD/MYR.

In the short term, the AUD/MYR is expected to fluctuate between 3.0 and 3.15. If Australian economic data continues to weaken, it may test support near 3.0. Conversely, if Australian data surprises positively and commodity prices rise, the pair could break above 3.15.

Practical Trading Recommendations

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

Operate within the 0.6370-0.6450 range. If AUD/USD stabilizes above 0.6450, consider small long positions targeting the 200-day moving average at 0.6464 and the psychological 0.6500 level. If it breaks below 0.6373 support, consider short positions targeting around 0.6300.

Key triggers include US GDP or non-farm payroll data, and Australian CPI releases, as these are often market sentiment turning points.

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

A bullish scenario requires two conditions: expectations of Fed rate cuts increase (weak US employment data, falling inflation) and trade tensions ease. Under these conditions, AUD could target 0.6550-0.6600. Watch for confirmation of a breakout above the 200-day moving average (0.6464).

A bearish scenario would be the opposite: if US economic resilience exceeds expectations (strong GDP and non-farm data), and the Fed delays rate cuts, the AUD could fall toward 0.6250. Escalating trade tensions and weak Chinese economic data would also reinforce downside risks.

Long-term Holding

If bullish on the AUD long-term, consider accumulating in phases at current relatively low levels, smoothing out market volatility over time. Only add positions after confirming an uptrend.

Summary of Trading Framework

Currently, AUD/USD is in a state of technical oscillation and fundamental tug-of-war. Short-term strategies should focus on range trading with breakout follow-ups. The medium- to long-term direction depends on signals from the Fed’s policy shifts and whether global trade risks ease.

Market uncertainty is high; any investment decision should be based on thorough risk awareness. The AUD exhibits significant volatility, so investors should adjust strategies flexibly according to their risk tolerance and closely monitor key economic data releases and market sentiment shifts around those events.