AUD to USD depreciated over 35% in ten years: How commodity currencies survive during a strong dollar cycle

The Australian dollar is one of the top five currencies by trading volume globally, with the AUD/USD exchange rate known for high liquidity and active trading. However, looking back over the past decade, the performance of this “high-yield currency” is quite disappointing—ranging from a level of 1.05 in early 2013 to today, the AUD has depreciated by over 35%, while the US dollar index has risen by 28.35%. This reflects a comprehensive strong dollar cycle crushing all major currencies.

Why Is the AUD in a Long-Term Weakness? Three Structural Barriers Hard to Break Through

The weakness in the AUD is not accidental. Since 2009, we can clearly see the relationship between the AUD’s performance and three core variables:

Commodity Prices Fluctuations Determine the tone of the AUD. When China’s economy rebounded strongly from 2009 to 2011, demand for bulk commodities like iron ore and coal surged, pushing the AUD close to 1.05; during the COVID-19 pandemic in 2020, Australia’s relatively stable pandemic response and Asian market demand for raw materials caused the AUD to rise about 38% within a year, briefly breaking above 0.80. But after 2023, with China’s recovery weakening and commodity demand declining, the AUD faced renewed pressure.

Diminishing Interest Rate Advantage Also plays a key role. Australia’s interest rates used to be significantly higher than the US, attracting hot money flows; now, as this interest rate differential narrows, the AUD’s appeal to capital diminishes. Although the Reserve Bank of Australia (RBA) still maintains a cash rate around 3.60%, and markets even expect a possible rate hike to 3.85% again by 2026, this still cannot offset the structural advantage of US interest rates and the safe-haven nature of the dollar.

Worsening Global Trade Environment Further impacts the AUD. US tariffs affect global supply chains, and a decline in raw material exports directly weakens the AUD’s status as a “commodity currency.” Australia’s domestic economic growth remains sluggish, and asset attractiveness is relatively low, leading capital to flow toward the more certain US dollar.

Data clearly shows that the AUD is currently in a state of “bounces but no clear trend.” Whenever the exchange rate approaches previous highs, selling pressure increases significantly, and market confidence in the AUD remains limited.

The 2025 Rebound: Flash in the Pan or Turning Point?

In the second half of 2025, some signs of change appeared. Iron ore and gold prices rebounded, the Federal Reserve entered a rate-cut cycle, and capital flowed back into risk assets, pushing the AUD/USD briefly up to 0.6636. Overall, the AUD appreciated about 5-7% in 2025.

But on a longer-term scale, whether this rebound can turn into a sustained trend still depends on more conditions. The reason is that, despite short-term strength in commodity prices, the fundamental weakness in global demand has not fundamentally improved, and energy price outlook remains uncertain. Investors tend to prefer safe-haven assets over cyclical currencies like the AUD, limiting its upside potential.

Three Key Variables That Determine the AUD’s Trend

To assess whether the AUD has sustainable upward potential, investors need to closely monitor the interaction of these three variables:

1. RBA Monetary Policy: Can the interest rate differential be rebuilt?

The AUD has long been viewed as a high-yield currency, with its attractiveness heavily dependent on relative interest rate differentials. If the Australian central bank’s inflation remains sticky and the employment market stays resilient, a hawkish stance from the RBA will help rebuild the AUD’s interest rate advantage. Conversely, if rate hike expectations fall short, the AUD’s support will weaken significantly. This is the primary condition for a potential AUD strengthening.

2. China’s Economy and Commodity Prices: External Drivers of the AUD

Australia’s export structure is highly concentrated in iron ore, coal, and energy. The AUD is essentially a “commodity currency,” with China’s demand being the most critical variable. When China’s infrastructure and manufacturing activity pick up, iron ore prices tend to strengthen simultaneously, and the AUD usually reflects this quickly in the exchange rate. Conversely, if China’s recovery remains weak, even a short-term commodity rebound may be followed by a “sharp rise and fall” pattern in the AUD.

3. US Dollar Cycle and Global Risk Sentiment: Capital Allocation Decisions

From a capital flow perspective, the Federal Reserve’s policy cycle remains central to the global FX market. In a rate-cut environment, a weaker dollar generally benefits risk assets, and the AUD benefits accordingly; but if risk aversion increases and capital flows back into the dollar, the AUD can come under pressure even if its fundamentals are stable. Recent market sentiment has slightly improved, but energy prices and global demand outlook still carry uncertainties.

For the AUD to break out into a true medium- to long-term bull trend, three conditions must occur simultaneously: the RBA shifts back to a hawkish stance, China’s demand substantively improves, and the dollar enters a structural weakening phase. If only one of these is met, the AUD is more likely to remain in a range-bound oscillation rather than a one-way rally.

Diverging Forecasts from Major Institutions on the AUD’s Future

Regarding the future of the AUD/USD, market analysts show clear divergence:

Optimistic Camp believes that if the US economy soft-lands and the dollar index declines, commodity currencies like the AUD will benefit. Morgan Stanley projects the AUD could rise to 0.72 by the end of 2025, supported by the RBA’s hawkish stance and rising commodity prices. Traders Union’s statistical models suggest an average of about 0.6875 (range 0.6738-0.7012) by the end of 2026, rising further to 0.725 by 2027, emphasizing the potential of a strong Australian labor market and commodity demand recovery.

Cautious Camp is more conservative. UBS believes that despite Australia’s economic resilience, uncertainties in global trade and potential changes in Fed policy could limit the AUD’s upside, with an expected exchange rate around 0.68 by year-end. The Australian Federal Bank economists further suggest that the AUD’s recovery might be short-lived, predicting the AUD/USD will peak around March 2026 but could fall again by the end of 2026. Other Wall Street analysts warn that if the US avoids recession but the dollar remains super-strong, the AUD will struggle to break through the 0.67 resistance level.

Current Reality: Range-Bound Trading Is the Norm

Synthesizing all perspectives, my outlook for the AUD in the first half of 2026 is: the AUD is likely to oscillate within 0.68-0.70, influenced by Chinese data and US non-farm payroll fluctuations.

The AUD will not fall sharply because Australia’s fundamentals remain solid, the RBA remains relatively hawkish, and resource exports and commodity cycles still favor it; but it also won’t surge to new highs, given the persistent structural advantage of the dollar. Short-term pressures mainly stem from fluctuations in Chinese economic data, while long-term positives include the potential recovery of Australia’s resource exports and commodity cycles.

AUD Exchange Rate Chart: Clear Trajectory Over the Past Decade

The AUD/USD chart clearly reflects all of this. From a technical perspective, the AUD repeatedly encounters resistance near key levels, with each approach to previous highs met with significant selling pressure, indicating a deeply ingrained market bearish sentiment toward the AUD. This is not just a price issue but also a reflection of pessimistic market expectations about Australia’s fundamentals.

Conclusion: The Future of the AUD Depends on Macro Conditions Resonating

As a commodity-exporting “commodity currency,” the AUD’s attribute remains prominent, especially with high correlation to prices of copper, iron ore, coal, and other raw materials. The AUD’s movement is not determined by a single factor but results from the interaction of RBA policy, China’s demand, and the US dollar cycle.

In the short term, a hawkish RBA stance and strong raw material prices will provide support; but in the medium to long term, global economic uncertainties and potential dollar rebounds pose risks. The AUD’s high liquidity, strong volatility patterns, and distinct economic structure make medium- to long-term trend judgments relatively straightforward—provided that the three key variables are considered comprehensively.

The historical trajectory of the AUD/USD exchange rate shows that the past decade’s weakness is not without cause but is the result of long-term structural factors. Whether the AUD can truly turn stronger in the future depends on whether these structural barriers can be broken through.