Why has the Australian dollar fallen into a long-term slump? Looking at historical lows to identify future investment opportunities

As the fifth most traded currency globally, the Australian dollar (AUD) maintains a leading position in trading activity and liquidity in the foreign exchange market. However, despite the abundant liquidity and obvious spread advantages of AUD/USD, few investors notice that the AUD is actually at a relatively historic low, reflecting a structural depreciation trend over the past decade.

To understand why the AUD continues to weaken, we must first clarify the macro pattern of this “Strong Dollar Cycle.”

The Truth Behind the 35% Decay of the AUD Over Ten Years: Not Just Exchange Rate Fluctuations

In early 2013, AUD/USD was around 1.05, but by 2023, this figure had fallen to about 0.67. Over ten years, the AUD depreciated by more than 35%, while the US Dollar Index (DXY) rose by 28% during the same period, with the euro, yen, and Canadian dollar showing similar trends.

This is not an isolated phenomenon for the AUD but part of a comprehensive strong dollar era. Notably, compared to other currencies, the downside potential for the AUD is greater, hiding underlying vulnerabilities specific to the Australian economy.

Over the past decade, the AUD’s movements can be divided into three phases:

2009-2011 China Recovery Period: Driven by a commodities bull market, the AUD once rose to a high of 1.05, benefiting from Australia’s role as a major raw material exporter.

2020-2022 Global Commodities Bull Market: During the pandemic, Australia’s relatively stable pandemic response, strong demand for iron ore in Asia, and the Reserve Bank of Australia’s (RBA) policy responses collectively pushed the AUD/USD up by about 38% within a year, briefly surpassing 0.80. However, this rebound was short-lived.

2023-2024 Weak Chinese Recovery Period: Despite some sporadic rebounds, the AUD mainly oscillates at low levels, with narrowing interest rate differentials adding downward pressure.

Entering 2025, the AUD experienced a brief turnaround as iron ore and gold prices rebounded, and the Federal Reserve’s rate cuts boosted risk assets, pushing the AUD/USD to 0.6636. Appreciation for the year was about 5-7%, but from a longer-term perspective, the “historic lows” pattern of the AUD has not fundamentally changed.

Why Is the AUD Difficult to Break Free? Three Structural Challenges

Even if commodity prices recover and the dollar weakens, why does the AUD still struggle to rebound? The answer lies in three deep-rooted issues:

1. Commodity Dependence Trap and Changes in Chinese Demand

Australia’s export structure is highly concentrated in iron ore, coal, and energy, making the AUD essentially a “commodity currency.” However, China’s economic slowdown and sluggish infrastructure investment have led to a clear decline in long-term demand for commodities.

Whenever the AUD approaches previous highs, selling pressure quickly increases, reflecting investors’ limited confidence in a sustained rise. Even if commodities rebound in the short term, the AUD is prone to “spike and retreat” rather than a sustained trend.

2. Diminishing Interest Rate Advantage

The AUD has long been regarded as a high-yield currency, with its attractiveness depending on interest rate differentials. Currently, the RBA’s cash rate is about 3.60%, with market expectations of possibly raising it again to 3.85% in 2026.

However, although the Federal Reserve shows signs of rate cuts, the interest rate advantage of the US over Australia has become difficult to reverse. If rate hike expectations fall short, the AUD’s support will weaken significantly. Coupled with sluggish domestic economic growth and relatively low asset attractiveness, foreign capital inflows are limited.

3. US Tariff Policies and Global Trade Uncertainty

US tariff policies impact global trade directly, lowering the outlook for raw material exports and undermining the AUD’s status as a commodity currency. Rising global economic uncertainty prompts investors to flock to safe-haven assets like the US dollar rather than cyclical currencies like the AUD.

In conclusion: The AUD currently resembles a “rebound but lacking a trend” currency, with markets remaining cautious about its long-term upward potential.

Three Key Factors to Watch for the AUD’s Future Direction

Investors seeking to grasp the turning points of the AUD should closely monitor three core variables, as their interactions determine whether the AUD can sustain an upward trend:

RBA Monetary Policy and Interest Rate Rebuilding: If the RBA maintains a hawkish stance and re-establishes a wider interest rate differential with the Fed, it will provide significant support for the AUD. Conversely, if rate hike expectations falter, the AUD’s momentum will weaken.

China’s Economy and Commodity Prices: As the external engine for the AUD, the recovery of China’s manufacturing and infrastructure activities directly influences medium-term prices of iron ore and other commodities. When Chinese demand substantively improves, the AUD typically reacts quickly.

US Dollar Cycle and Global Risk Sentiment: The Fed’s policy remains central to the global forex market. A rate-cut environment generally favors the AUD, but if risk aversion rises and capital flows back into the dollar, the AUD can weaken even without deteriorating fundamentals.

For the AUD to break into a genuine medium- to long-term bull market, all three conditions must be met simultaneously: the RBA maintains or hikes hawkishly, China’s demand genuinely rebounds, and the US dollar enters a structural weakening phase. If only one or two are present, the AUD is more likely to remain range-bound rather than trend upward.

2026 and Beyond: AUD Outlook and Divergent Views

Market analysts’ opinions on the AUD’s future are increasingly divided, reflecting the complexity of its prospects:

Optimistic forecasts: Morgan Stanley projects the AUD to rise to 0.72 by the end of the year; 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 in 2027. These forecasts assume a soft landing of the US economy and a decline in the dollar index.

Cautious warnings: UBS believes that global trade uncertainties and Fed policy shifts will limit the AUD’s upside, expecting it to stay around 0.68 by year-end. Australian economists are more conservative, predicting only a short-term rebound with the AUD/USD peaking around March 2026 before possibly retreating again.

Moderate view: If the US avoids recession but the dollar remains super-strong due to interest rate differentials, the AUD will struggle to break above 0.67. In the first half of 2026, the AUD is likely to oscillate within 0.68-0.70, influenced by Chinese data and US non-farm payrolls.

Australia’s fundamentals remain relatively solid, and the hawkish stance of the RBA provides a floor. However, the structural advantage of the dollar persists, making a sharp collapse unlikely. Short-term pressures mainly stem from Chinese economic data, while long-term positives include resource exports and commodity cycle recovery.

AUD Investment Opportunities: Forex Leverage Trading Guide

As one of the top five most traded currency pairs globally, AUD/USD boasts high liquidity and strong volatility patterns, making technical and fundamental analysis more accessible. Although predicting exchange rates is inherently challenging, Australia’s economic structure offers clearer medium- to long-term trend insights.

Investors can participate in AUD fluctuations through forex margin trading, which offers several advantages:

• Dual-direction trading: go long in bullish phases, or profit from declines
• Flexible leverage: options from 1x to 200x, amplifying gains and risks
• Low entry barriers: suitable for small and medium investors
• 24-hour market: continuous trading opportunities

Important reminder: Forex trading involves high risk; investors may lose all capital. Fully understand the risks and develop clear risk management strategies before trading.

Most reputable forex platforms offer free demo accounts for practice, with web-based interfaces that require no downloads, lowering entry barriers.

Conclusion: The Reality and Opportunities of AUD Investment

Although the AUD is at a historic low, this “low” may contain opportunities. As a commodity currency, the AUD is highly correlated with iron ore, copper, gold, and other raw materials. When the global economy recovers from current uncertainties, the rebound potential for the AUD is relatively clear.

However, such rebounds are not linear; they depend on complex interactions among RBA policies, Chinese demand, and the US dollar cycle. Investors should closely monitor these three variables rather than blindly chase highs or panic sell.

While forex markets are volatile and short-term predictions are difficult, the AUD’s unique economic structure and market liquidity provide relatively clear medium- to long-term investment logic. For traders seeking diversification, the AUD remains worth attention and moderate participation.