Why does the AUD continue to stay under pressure? Short-term forecast and investment analysis of the Australian dollar in 2026

The Australian dollar is the fifth most traded major currency by trading volume globally, and the AUD/USD exchange rate is equally active in the international foreign exchange market. However, over the past decade, the AUD has generally performed relatively weakly. Aside from its advantages of high liquidity and low spreads, the long-term downtrend has become a market consensus.

The Decade-long Struggle of the AUD: Victim of the Strong Dollar Cycle

Looking back to early 2013 at the 1.05 level, the AUD/USD has depreciated by over 35% in the following ten years, while the US dollar index rose by 28.35% during the same period. This is not just an AUD issue; major currencies like the euro, yen, and Canadian dollar also depreciated against the dollar, reflecting a global shift into a prolonged strong dollar cycle.

The COVID-19 pandemic in 2020 was an exception. At that time, Australia’s pandemic control was relatively stable, Asian markets had strong demand for commodities like iron ore, and the Reserve Bank of Australia (RBA) policies aligned, causing the AUD to appreciate about 38% within a year. But this was short-lived. Since then, the AUD has mostly been consolidating or weakening.

Entering 2025, with rising iron ore and gold prices, and the Federal Reserve’s rate cuts driving risk asset inflows, the AUD benefited in the short term, rising to around 0.6636, with an annual appreciation of about 5-7%. Nevertheless, on a longer time scale, the AUD still remains structurally weak.

Three Key Factors Influencing Short-term AUD Forecasts

To determine the short-term direction of the AUD, investors need to continuously monitor three core variables:

1. RBA’s Monetary Policy

The long-term attractiveness of the AUD as a high-yield currency depends entirely on the interest rate differential. Currently, the RBA cash rate is about 3.60%, with market expectations of another rate hike in 2026. The Commonwealth Bank of Australia (CBA) forecasts a potential peak rate of 3.85%. If inflation remains sticky and the labor market stays resilient, the RBA’s hawkish stance will restore the AUD’s interest rate advantage; otherwise, a failure to hike rates will significantly weaken the AUD’s support.

2. China’s Economy and Commodity Prices

Australia’s export structure is highly concentrated in iron ore, coal, and energy. Essentially, the AUD is a commodity currency, with China demand being the most critical variable. When China’s infrastructure activities rebound and iron ore prices rise, the AUD usually reacts swiftly; but if China’s recovery is insufficient, even short-term commodity rebounds may lead to quick gains followed by declines.

3. US Dollar Trends and Global Risk Sentiment

The Federal Reserve’s policy cycle continues to dominate the global FX market. In a rate-cut environment, a weaker dollar generally benefits risk currencies, and the AUD benefits accordingly. However, when risk aversion rises and capital flows back into the dollar, even if the AUD’s fundamentals are intact, it can come under pressure.

Short-term AUD Forecast: Divergent Expectations from Institutions

Market institutions show clear divergence in short-term AUD forecasts:

Optimistic Camp believes that if the US economy experiences a soft landing and the dollar index declines, commodity currencies like the AUD will benefit. Morgan Stanley predicts the AUD/USD could rise to 0.72, mainly supported by the RBA’s hawkish stance and commodity prices. The Traders Union statistical model projects an average of about 0.6875 by the end of 2026 (range 0.6738-0.7012), and further up to 0.725 in 2027.

Cautious Camp is more conservative. UBS suggests that despite Australia’s economic resilience, global trade uncertainties and Fed policy changes could limit the AUD’s upside, expecting the exchange rate to stay around 0.68 by year-end. Economists at CBA also warn that the AUD recovery might be temporary, predicting a peak around March 2026, with a possible decline again by year’s end.

Actual Outlook for Short-term AUD Forecast

Based on comprehensive analysis, the AUD is likely to fluctuate between 0.68 and 0.70 in the first half of 2026. Short-term pressures mainly stem from fluctuations in China’s economic data and US non-farm payroll reports. However, Australia’s fundamentals remain relatively stable, and the RBA’s hawkish stance provides support, making a significant collapse unlikely.

Nevertheless, the structural advantage of the dollar still exists, and returning to 1.0 is premature. The key to a sustained medium- to long-term bull run for the AUD depends on three simultaneous conditions: the RBA returning to a hawkish stance, a substantial improvement in Chinese demand, and a structural weakening of the dollar. Meeting only one of these conditions will likely keep the AUD in a range-bound state.

Considerations for Investing in the AUD

The AUD/USD exhibits clear economic characteristics—being a “commodity currency” of major commodity exporters—and is highly correlated with raw material prices such as copper, iron ore, and coal. Its high liquidity and regular volatility patterns make the medium- to long-term trend relatively easier to assess.

In the short term, the hawkish stance of the RBA and strong raw material prices will provide support. However, in the medium to long term, global economic uncertainties and the risk of a rebound in the dollar should be closely watched. All investments carry risks; investors should thoroughly assess their risk tolerance before entering the forex market.