The truth behind the 35% depreciation of the Australian dollar over ten years: Can the exchange rate reverse by 2026?

The AUD/USD is one of the top five most traded currency pairs globally, characterized by high liquidity and low spreads, and has traditionally been viewed as a high-yield currency target. However, when looking at a longer time horizon, the performance of the Australian dollar has been disappointing—showing overall weakness over the past decade, with only brief rebounds during certain periods.

From an initial level of 1.05 in early 2013 to the end of 2023, the AUD/USD has depreciated by over 35%, while the US dollar index DXY has risen by 28.35% during the same period. This is not an isolated pressure on the AUD; the euro, yen, and Canadian dollar also face a weakening trend against the dollar, reflecting the dominance of a strong dollar cycle globally. Although in 2025, the AUD benefited from rising iron ore and gold prices, and a risk-on environment driven by the Fed cutting interest rates, pushing it briefly to 0.6636—an overall appreciation of about 5-7%—these rebounds are still short-term corrections rather than a change in trend when viewed over a longer timeframe.

Why Has the AUD Always Struggled to Shake Off Weakness? Three Key Factors Determine Its Direction

Diminishing Interest Rate Advantage

The Reserve Bank of Australia (RBA) currently has a cash rate of about 3.60%, with market expectations of another rate hike possibly in 2026, reaching a peak of around 3.85%. However, the interest rate differential between Australia and the US has changed significantly. The appeal of the AUD as a high-yield currency has greatly diminished. If rate hike expectations fall short, the AUD’s support will weaken noticeably.

Commodity Demand Decline

Australia’s economy is heavily reliant on raw material exports—iron ore, coal, and energy constitute the bulk of exports. As a typical commodity currency, the AUD is closely linked to commodity prices. China’s manufacturing and infrastructure activities are key drivers of iron ore demand. When China’s economic recovery is weak, even short-term rebounds in commodities tend to be followed by declines in the AUD. Additionally, US tariffs impact global trade, leading to a drop in raw material exports and directly undermining the AUD’s status as a commodity currency.

Structural US Dollar Advantage

The Fed’s policy cycle continues to dominate the global FX market. Although the recent environment of rate cuts has weakened the dollar, risk currencies like the AUD should benefit. However, as risk aversion rises and capital flows back into the dollar, even if the AUD’s fundamentals are stable, it can still come under pressure. The interest rate differential between the US and Australia remains difficult to reverse, and rising global economic uncertainties lead markets to favor safe-haven assets over cyclical currencies, limiting the AUD’s upside potential.

For the AUD to Turn Around in the Medium to Long Term, Three Conditions Must Be Met Simultaneously

The AUD needs to break out of a true medium- to long-term bullish trend, which requires:

RBA Maintains a Hawkish Stance — through rate hikes to rebuild interest rate differentials and attract arbitrage trading

Substantial Improvement in Chinese Demand — driving up prices of iron ore and other commodities, reinforcing the AUD’s commodity currency nature

Structural Weakening of the US Dollar — Fed further cuts rates, prompting capital reallocation into risk assets

If only one of these conditions is met, the AUD is more likely to remain range-bound rather than trend higher. This also explains why every time the AUD approaches previous highs, selling pressure increases—market confidence in the AUD remains limited.

2026 AUD Outlook: Diverging Market Analyst Opinions

Expectations for the AUD’s trajectory since 2023 show clear divergence among market participants.

Optimists — Morgan Stanley forecasts the AUD/USD could rise to 0.72, mainly based on the RBA’s hawkish stance and strengthening commodities. The Traders Union’s statistical model indicates an average of about 0.6875 by the end of 2026 (range 0.6738-0.7012), rising further to 0.725 by the end of 2027, supported by a strong Australian labor market and a recovery in commodity demand.

Cautious Viewpoints — UBS believes that despite resilience in Australia’s 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 warn that the recovery may be short-lived, expecting the AUD to peak around March 2026 but possibly retreating again by year-end. Some Wall Street analysts warn that if the US avoids recession but the dollar remains super-strong, the AUD will struggle to break through 0.67 resistance.

Practical Perspective — In the first half of 2026, the AUD is likely to fluctuate between 0.68 and 0.70, influenced by Chinese data and US non-farm payrolls. The AUD is unlikely to crash sharply because Australia’s fundamentals remain solid and the RBA remains relatively hawkish, but it also won’t surge to new highs due to the ongoing structural strength of the dollar. Short-term pressures mainly stem from Chinese economic data, while long-term positives include Australia’s resource exports and commodity cycles.

Practical Investment Outlook for the AUD

The AUD/USD pair combines high liquidity with clear cyclical patterns, making medium- to long-term trend judgments relatively straightforward. Investors can engage in forex margin trading for long and short positions, using leverage from 1-200 times for flexible deployment, with low trading thresholds suitable for small and medium investors.

However, forex trading is high-risk, and investors should be aware of the possibility of losing all invested capital. Before trading, it’s essential to understand the multiple factors influencing the AUD’s outlook, establish clear risk management plans, and avoid blindly following market trends.

Summary of the AUD Outlook

As a “commodity currency” of a major raw material exporter, the AUD remains highly correlated with iron ore, coal, and other commodity prices. Short-term support comes from the RBA’s hawkish stance and strong raw material prices, but medium- to long-term risks include global economic uncertainties and potential US dollar rebounds.

For the AUD to achieve a genuine appreciation trend, it’s not enough to rely solely on technical rebounds; macroeconomic fundamentals must improve substantively—especially a recovery in Chinese demand and a weakening US dollar. Until then, the AUD is more likely to remain volatile within a range, and whether rebounds can turn into sustained trends remains to be seen.