Australian Dollar Dilemma In-Depth Analysis: Why Is It So Difficult to Break Above 0.67? 20-Year Exchange Rate Chart Reveals the Truth

The Australian dollar is among the top five currencies by global trading volume, and the “AUD/USD” is also one of the most actively traded currency pairs. With ample liquidity and low spreads, it indeed attracts many traders for short-term operations or medium- to long-term positioning.

Interestingly, the AUD has long been labeled as a “carry trade currency,” a frequent player in hot money flows and arbitrage trading. However, if we look at the performance of the AUD over the past decade, this halo is fading—except for the strong rebound during the pandemic in 2020, the AUD has mostly been in consolidation or downtrend.

Why is the AUD caught in a “rebound without a trend” dilemma?

From the 20-year exchange rate chart of the AUD, the story is quite clear. In early 2013, the AUD/USD was around 1.05, and by 2023, it had depreciated by over 35%. During the same period, the US dollar index rose by 28.35%, and the euro, yen, and Canadian dollar also depreciated against the dollar—this is not an isolated issue for the AUD but part of a prolonged “strong dollar cycle.”

The performance of the AUD over the past ten years has been quite lackluster. Even in 2025, driven by a surge in iron ore prices, a rally in gold, and Fed rate cuts attracting risk assets, the AUD/USD only briefly rose to 0.6636, with an annual increase of about 5-7%—a mere drop in the bucket compared to the cumulative depreciation over ten years.

Whenever the AUD approaches previous highs, market selling pressure clearly increases, reflecting persistent limited confidence in the currency. Analysis points to several main reasons:

US tariff policies impact: Global trade disruptions and declining demand for Australian raw materials (metals, energy) weaken the fundamentals of the AUD as a commodity currency.

Diminishing interest rate advantage: The interest rate differential between Australia and the US remains difficult to reverse, which is very unfavorable for capital relying on carry trades.

Domestic economic weakness: Australia’s domestic economy lacks momentum, and asset attractiveness is relatively low, making sustained buying difficult.

Therefore, the AUD is more like a “rebound but no trend” currency. Without clear growth drivers and interest rate advantages, its movement is easily influenced by external factors rather than its own fundamentals.

Three key factors to monitor for AUD trends

To judge whether the AUD has the potential for sustained upward movement, investors should focus on the following three core variables:

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

The Reserve Bank of Australia (RBA) cash rate is about 3.60%. The market is gradually shifting expectations toward “possible rate hikes in 2026,” with Commonwealth Bank of Australia (CBA) forecasting a potential peak of 3.85%.

If inflation remains sticky and the employment market stays resilient, the RBA’s hawkish stance will help the AUD rebuild its interest rate advantage; conversely, if rate hike expectations fall short, the AUD’s support will weaken significantly.

2. China’s economy and commodity prices: External drivers for 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 rebound, iron ore prices tend to strengthen in tandem, quickly reflecting in the exchange rate; but if China’s recovery lacks momentum, even a short-term commodity rally may lead to a “spike and fall” pattern in the AUD.

3. US dollar trend and risk sentiment: Capital flow determinants

The Federal Reserve’s policy cycle remains the core engine of the global FX market. In a rate-cut environment, a weakening dollar usually benefits risk currencies, and the AUD benefits accordingly; but if risk aversion rises and capital flows back into the dollar, the AUD may face pressure even if its fundamentals are not deteriorating.

For the AUD to break out into a genuine medium- to long-term bull trend, three conditions must be met simultaneously: RBA maintains a hawkish stance, China’s demand substantively improves, and the dollar enters a structural weakening phase. If only one of these is present, the AUD is more likely to stay in a range rather than trend upward.

How do various institutions view the AUD’s future?

The core question for the AUD’s future movement is whether the “rebound can turn into a trend.” Market analysts show clear divergence in outlooks:

Morgan Stanley is relatively optimistic, expecting the AUD/USD to rise to 0.72 by the end of 2025. This forecast is mainly based on the possibility that the RBA will maintain a hawkish stance and on the support from rising commodity prices.

Traders Union’s statistical model projects 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, emphasizing strong Australian labor markets and a recovery in commodity demand as key drivers.

UBS is much more conservative, believing that despite resilience in Australia’s economy, global trade uncertainties and potential changes in Fed policy could limit the upside, with the exchange rate expected to stay around 0.68 by year-end.

CBA economists recently expressed cautious views, suggesting that the AUD’s recovery might be short-lived. They forecast the AUD/USD to peak around March 2026 but possibly fall again by the end of 2026.

Some Wall Street analyses even warn that if the US avoids recession but the dollar remains super-strong (due to interest rate differentials), the AUD will struggle to break through 0.67.

Overall, in the first half of 2026, the AUD is likely to fluctuate between 0.68-0.70, influenced by Chinese data and US non-farm payroll figures. The AUD won’t crash because Australia’s fundamentals are solid and the RBA remains relatively hawkish; but it also won’t surge higher due to the ongoing structural strength of the dollar. Short-term pressures mainly come from Chinese economic data, while long-term positives include resource exports and commodity cycles.

Final conclusion on AUD trends

As a “commodity currency” of a major resource-exporting country, the AUD’s attribute remains prominent, especially with high correlation to prices of copper, iron ore, coal, and other raw materials.

Market analysis suggests that in the short term, the hawkish stance of the RBA and strong commodity prices will provide support; but in the medium to long term, global economic uncertainties and potential dollar rebounds will limit the upside and lead to more volatile movements.

FX market fluctuations are rapid, and predicting exchange rates accurately is challenging. However, due to high liquidity, strong volatility patterns, and the clear structural features of the Australian economy, medium- and long-term trend judgments are relatively easier to grasp. As long as investors understand the underlying logic behind the 20-year AUD exchange rate chart—namely, the strong dollar cycle, interest rate convergence, and commodity demand changes—they can have a clearer view of the bullish and bearish turning points for the AUD.