Analysis of the Deep Logic Behind the Australian Dollar's Continued Pressure and Rebound Opportunities

The Australian dollar, as the fifth most traded currency globally, holds an important position in the foreign exchange market. AUD/USD is also one of the most actively traded currency pairs, characterized by ample liquidity and low spreads, making it a key focus for short-term traders and medium- to long-term investors.

However, in recent years, the performance of the AUD has been disappointing. From the high of 1.05 in early 2013, the Australian dollar has depreciated over 35% against the US dollar in the past decade, while the US dollar index has risen by 28.35% during the same period. This reflects a global strong dollar cycle, with the AUD, as a commodity currency, facing particular challenges.

Why has the AUD fallen into a long-term weakness?

The fate of commodity currencies

The AUD is called a “commodity currency” because the Australian economy is highly dependent on exports of iron ore, coal, copper, and other bulk commodities. While this characteristic can provide strong support when commodity prices rise, it makes the AUD vulnerable when raw material markets weaken. A slowdown in global demand for commodities directly impacts the AUD’s fundamentals.

Loss of appeal of high-yield currencies

Once, the AUD attracted significant carry trade capital due to relatively high interest rates. But in recent years, with the Reserve Bank of Australia (RBA) adjusting policies, the interest rate advantage has diminished. The interest rate differential between Australia and the US is difficult to reverse, leading capital to flow into higher-yield markets like the US, causing the AUD to lose its former “money-making” appeal.

Weak economic fundamentals

In Q4 2024, the AUD/USD exchange rate plummeted, with an annual decline of about 9.2%. Entering 2025, amid rising global trade tensions and recession expectations, the AUD briefly fell to 0.5933, hitting a five-year low. US tariffs have hurt global trade, demand for raw materials has declined, and Australia’s domestic economic growth has been sluggish, all contributing to the underperformance of the AUD.

Three key points for the AUD rebound

RBA policy outlook

The Reserve Bank of Australia (RBA) maintained interest rates at 3.6% in November and issued cautious signals. Q3 CPI rose 1.3% month-over-month, exceeding market expectations, which constrains the RBA’s room to cut rates. In the short term, market expectations for future policy easing are cooling. However, the waning of easing expectations could support the AUD in the short term—compared to currencies that are currently or soon to be cut (like the USD), the AUD appears more attractive.

The strength or weakness of the US dollar

The Federal Reserve announced a 25 basis point rate cut in October, but Chair Powell’s subsequent comments dampened expectations for further easing. The US dollar index, after bottoming near 96 in summer, has shown unexpected resilience, rebounding about 3%, with a break above 100 becoming more likely. The AUD and USD often move inversely—when the dollar strengthens, the AUD weakens. This is a fundamental logic investors must keep in mind.

China’s economy as a core variable

Australia’s economic structure is highly dependent on resource exports, with China being its largest buyer. The speed and strength of China’s economic recovery directly influence demand for key raw materials like iron ore, coal, and natural gas. When China shows signs of a strong recovery, the AUD tends to gain support; conversely, if China’s recovery slows or the property market remains sluggish, the AUD loses important support.

Outlook for multiple exchange rates

AUD/USD: seeking breakout amid volatility

Currently, AUD/USD fluctuates between 0.63 and 0.66, recently reaching 0.6636, a new high since November 2024. Influencing factors include:

• Australian inflation has eased but remains above RBA expectations, limiting rate cuts
• A strong US dollar suppresses the AUD
• Commodity price swings cause oscillations in commodity currencies

Short-term forecast: AUD/USD is expected to fluctuate between 0.63 and 0.66. If inflation data is favorable and the economy remains stable, it may test resistance above 0.66; otherwise, if global risk appetite deteriorates, it could fall back toward 0.63.

AUD against CNY: following AUD/USD trend

Trade relations between China and Australia remain relatively stable, but AUD/CNY’s movement closely follows AUD/USD. The RMB exchange rate is heavily influenced by Chinese central bank policies and US-China relations. Amid soft Chinese economic data (e.g., declining services PMI) but some easing in US-China trade negotiations, the RMB remains relatively stable.

Short-term forecast: AUD/CNY may oscillate between 4.6 and 4.75. If the RMB weakens due to economic pressures, this currency pair could briefly rise toward 4.8.

AUD against MYR: reflecting regional economic differences

Malaysia’s economy also relies on exports and raw materials, with the Ringgit sensitive to commodity prices. The divergence in AUD and MYR trends reflects differences in economic cycles and commodity dependence. If global demand remains stable, the Ringgit may strengthen; if Australian economic data continues to weaken, AUD/MYR could face downside pressure.

Short-term forecast: AUD/MYR may trade between 3.0 and 3.15. If Australian economic data shows further weakness, it could test support near 3.0.

Trading strategies and risk management

Short-term trading ideas (1-3 days)

Long opportunities: When AUD/USD breaks above 0.6450 resistance, consider a small long position targeting 0.6464 (200-day moving average), and further toward 0.6500 psychological level. Trigger factors include US data weaker than expected (implying increased rate cut probability) or Australian CPI unexpectedly warming. Stop-loss at below 0.6420.

Short opportunities: If it falls below 0.6373 support (10-day EMA), consider shorting with targets at 0.6336 or even 0.6300. Trigger factors include strong US data or a significant cooling of Australian CPI. Stop-loss above 0.6400.

Wait-and-see: Before key data releases, maintain caution. With US GDP, core PCE, and Australian CPI upcoming, reduce positions to avoid being caught in unexpected volatility.

Medium-term layout (1-3 weeks)

Bullish scenario: If Fed rate cuts intensify and trade tensions ease, the AUD could benefit from risk sentiment, targeting 0.6550-0.6600. A technical breakout above the 200-day moving average (0.6464) can be used to add to long positions.

Bearish scenario: If US economic resilience exceeds expectations and the Fed delays rate cuts, the USD could strengthen, pushing the AUD down toward 0.6250 (yearly low). Escalating trade tensions and weak Chinese data could also increase downside risks.

Long-term holding approach

If bullish on the AUD long-term, consider accumulating gradually at current lows, using time to smooth out market volatility. This approach requires a long-term view of Australia’s economy and commodity cycles, and the ability to withstand short-term fluctuations.

Important reminder

The AUD exchange rate is highly volatile, influenced by multiple global macro factors. All forex investments carry risks, including potential loss of principal. Investors should fully understand market risks before trading, establish proper risk management systems, and avoid blindly chasing trends or heavily betting on a single direction.

Currently, AUD/USD is in a phase of technical oscillation amid fundamental battles. Traders should closely monitor market sentiment before and after data releases, adjust strategies flexibly, and seize opportunities amid volatility.