Australian dollar exchange rate dilemma: Analyzing future appreciation potential from a commodity currency perspective

The Australian dollar, as the fifth most traded currency globally (ranking: USD, EUR, JPY, GBP, AUD), is also one of the most active currency pairs in the world—AUD/USD. This characteristic grants the AUD ample liquidity and low trading costs, but also makes it a high-risk, high-reward asset.

Why has the AUD been depreciating continuously over the past decade? Commodity Currency Trap

The AUD is a typical commodity currency—Australia’s economy heavily relies on exports of iron ore, coal, copper, and other raw materials. This means that every fluctuation in global commodity prices causes sharp swings in the AUD exchange rate. Coupled with its status as a high-yield currency attracting carry trades, the AUD should theoretically be strong, but in reality, it has been the opposite.

Starting from 2013 at 1.05, the AUD has depreciated over 35% against the USD in the following ten years. During the same period, the US Dollar Index (DXY) rose by 28.35%, and the euro, yen, and CAD also generally depreciated. This is not an isolated case for the AUD but a collective result of the global strong dollar cycle—the US dollar, backed by economic resilience and policy advantages, continues to drain value from other currencies.

Entering Q4 2024, the AUD performed even worse. The full-year decline was about 9.2%, and by early 2025, it briefly touched 0.5933, a five-year low. The main culprits include:

• Rising US tariff policies sparking global trade frictions, dimming Australia’s raw material export prospects
• Narrowing Australia-US interest rate differential, leading to capital outflows from Australia
• Weak Australian economy, reducing domestic asset attractiveness

Can the rebound persist? Three key factors determine the AUD’s direction

In the second half of the year, the AUD finally showed some relief. Iron ore and gold prices surged, the Federal Reserve signaled rate cuts, and risk assets regained favor, pushing the AUD to a high of 0.6636, the highest since November 2024. But can this rebound last? The following three factors are crucial:

Factor 1: Australia’s inflation and central bank policy stance

The Reserve Bank of Australia (RBA) kept interest rates at 3.6% in November but issued cautious signals. In Q3, the Consumer Price Index rose 1.3 month-over-month, well above expectations and the previous quarter’s 0.7%. The central bank emphasized that core inflation pressures in housing and services remain stubborn, and only when inflation enters a sustainable downward trajectory will rate cuts be considered.

This stance is short-term favorable for the AUD—compared to the impending rate cuts in the US dollar, the AUD appears more attractive. However, if inflation surges again, the RBA may be forced to maintain a hawkish stance, limiting the AUD’s upside.

Factor 2: Turning point in the US dollar strength cycle

In October, the Fed announced a second rate cut (fund rate cut to 3.75%-4.00%), but Powell’s subsequent remarks clearly dampened expectations for further cuts in December. More importantly, the US Dollar Index (DXY) has rebounded about 3% from its summer lows of 96, with a rising likelihood of breaking above 100.

The AUD/USD pair usually moves inversely to the dollar. Once the dollar regains strength, the AUD will face downward pressure.

Factor 3: The strength of China’s economic recovery

Australia is a resource-exporting country, with China as its largest buyer. The health of China’s economy directly influences demand for Australian iron ore, coal, natural gas, and other key raw materials, serving as a barometer for the AUD’s trend.

Currently, China’s economic data remains weak, and the real estate market is sluggish, exerting persistent pressure on the commodity currency attributes of the AUD.

Divergence among financial institutions: Year-end target prices vary widely

Major institutions have differing views on the AUD outlook:

The target price range from 0.66 to 0.72 reflects the market’s real dilemma: optimistic scenarios suggest potential appreciation, but numerous fundamental risks remain.

AUD major currency pairs outlook

AUD/USD: Key level 0.6450

Currently oscillating around 0.65. If it stabilizes above 0.6450, a bullish attempt can be made, targeting 0.6500 and the 200-day moving average at 0.6464. A break below 0.6373 support increases risk, possibly pushing toward 0.6300.

Main triggers: weaker US employment data (positive for AUD), hotter-than-expected Australian CPI (positive for AUD), easing trade tensions (benefiting risk assets).

AUD/CNY: Expectation of range-bound trading

Likely to fluctuate within 4.6-4.75 over the next 1-3 months. If the RMB weakens due to domestic or external pressures, AUD/CNY could briefly rise toward 4.8. Its movement closely follows AUD/USD, but with slightly smaller volatility.

AUD/MYR: Downside risks dominate

With Australia’s economy weak and Malaysia’s policies relatively stable, the pair is expected to trade within 3.0-3.15. If Australian data continues to deteriorate, it may test the 3.0 support level downward.

Short to medium-term trading strategies

Short-term (1-3 days): Range trading mainly

• Long conditions: Price breaks above 0.6450, target 0.6500, stop-loss 0.6420
• Short conditions: Breaks below 0.6373, target 0.6300, stop-loss 0.6400
• Be cautious before data releases; avoid heavy positions during high volatility

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

• Bullish scenario: US Fed rate cuts expectations rise + stable commodity prices, target 0.6550-0.6600
• Bearish risks: US economic resilience exceeds expectations + geopolitical tensions, target 0.6250 downward

Long-term holding: Gradual position building

If optimistic about the AUD’s medium-term rebound potential, consider accumulating in phases at current lows, spreading out costs, especially after confirming a trend reversal.

Risk warnings for investors

The AUD exchange rate is highly volatile and unpredictable. All investment decisions should be based on comprehensive risk assessments. Forex trading involves high risk; investors must fully understand the risk of losing all funds and avoid reckless trading. It is recommended to incorporate multiple market insights, adjust positions dynamically, and regularly review the rationale behind holdings.