The truth about the Australian dollar getting weaker — Is it worth exchanging USD for AUD? AUD to USD trend forecast for 2026

The Australian dollar (AUD) is one of the top five currencies by global trading volume. The AUD/USD pair is also a highly active trading instrument due to its liquidity and low spreads. Many investors are interested in the AUD, but its performance over the past decade has been less than ideal. When asking “Is it worthwhile to exchange USD for AUD?” the answer isn’t straightforward; it requires considering multiple exchange rate changes over different time points.

Why has the AUD been consistently depreciating? The fundamental reasons for a decline of over 35% in ten years

From 2013 to 2023, the AUD has depreciated over 35% against the USD, while the US dollar index has risen by 28.35% in the same period. This reflects a global phenomenon—the strong dollar cycle. The euro, yen, and Canadian dollar have also weakened against the dollar, indicating that the AUD is not under unique pressure.

The depreciation of the AUD is mainly driven by three major factors:

Decline in commodity demand—Australia’s exports heavily depend on raw materials like iron ore, coal, and energy. Global demand for these commodities has not remained strong. Commodities serve as the “external engine” for the AUD; when China’s economic recovery falters, the AUD loses momentum.

Diminishing interest rate advantage—The AUD once attracted hot money due to high interest rates. However, as the US raised interest rates during its rate hike cycle, US dollar yields increased, significantly narrowing the interest rate differential. Convergence of interest rates reduces the arbitrage appeal of exchanging USD for AUD.

Impact of US tariff policies—Recent US tariff policies have introduced uncertainty, dampening the outlook for global raw material exports and weakening the AUD’s status as a commodity currency.

It is worth noting that during the COVID-19 pandemic in 2020, the AUD rebounded by 38%, supported by Australia’s effective pandemic control and strong demand for bulk commodities in Asia. However, since then, the AUD has mostly been consolidating or trending weaker.

Will the AUD rebound in 2025? Why is buying still sluggish?

In the second half of 2025, iron ore and gold prices surged, and the US Federal Reserve cut interest rates, prompting capital flows into risk assets. The AUD/USD once rose to 0.6636, appreciating about 5–7% for the year. But can this rebound continue?

Whenever the AUD approaches previous highs, selling pressure increases, and market confidence in the AUD remains limited. The market generally views the AUD as a “rebound with no clear trend”—it can spike in the short term but lacks long- to medium-term growth momentum.

Three key factors influencing the AUD’s direction

To determine whether it is worthwhile to exchange USD for AUD, focus on these three core variables:

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

The Reserve Bank of Australia (RBA) currently has a cash rate of about 3.60%. Market expectations suggest it may raise rates again to 3.85% by 2026. If inflation remains sticky and the employment market stays strong, a hawkish stance from the RBA could help restore the AUD’s interest rate advantage. Conversely, if rate hikes fall short, the AUD’s support will weaken significantly.

2. China’s economy and commodity prices—External engines

Australia’s economy is highly reliant on exports to China. When China’s infrastructure and manufacturing activities rebound, iron ore prices tend to rise, and the AUD often follows suit. However, if China’s recovery lacks momentum, even a short-term commodity rebound may be followed by a decline in the AUD.

3. US dollar trend and global risk sentiment

In a rate-cut environment, a weakening dollar generally benefits the AUD. But if risk aversion increases and capital flows back into the US dollar, the AUD may weaken even if its fundamentals are stable.

For the AUD to enter a genuine medium- to long-term bull phase, all three conditions must be met simultaneously: hawkish RBA policy, substantial improvement in Chinese demand, and a structural weakening of the US dollar. If only one or two are present, the AUD is more likely to remain in a range-bound oscillation rather than a sustained upward trend.

Forecast for the AUD in 2026 and beyond—Is it worthwhile to exchange USD for AUD?

Major institutions have differing views on the AUD outlook:

Optimistic forecasts—Morgan Stanley expects the AUD/USD to rise to around 0.72, supported by the RBA maintaining a hawkish stance and strong commodities. The Traders Union 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.

Conservative forecasts—UBS believes that global trade uncertainties and changes in Fed policy could limit the AUD’s gains, expecting the exchange rate to stay around 0.68 by year-end. The Commonwealth Bank of Australia(CBA) warns that the AUD’s recovery may be temporary, predicting a peak around March 2026 followed by a decline.

Practical outlook—In the first half of 2026, the AUD is likely to fluctuate between 0.68 and 0.70, with short-term volatility driven mainly by Chinese economic data and US non-farm payrolls. Australia’s solid fundamentals and the relatively hawkish stance of the RBA provide long-term support, but structural US dollar strength remains, making it difficult for the AUD to surge sharply.

Investment advice on exchanging USD for AUD

Is it worthwhile to exchange USD for AUD? The answer depends on timing and purpose:

For daily life or regular residence, refer to daily exchange rates. From an investment perspective, when the AUD approaches lows of around 0.67–0.68, it becomes relatively attractive, as interest rate differentials and commodity cycle expectations are more favorable.

As a commodity currency, the AUD is highly correlated with copper, iron ore, and coal prices. In the short term, the hawkish stance of the RBA and strong raw material prices support the AUD. However, in the medium to long term, global economic uncertainties and potential US dollar rebounds should be monitored.

Due to its high liquidity and volatility patterns, the medium- to long-term trend of the AUD is relatively easier to judge. Nonetheless, all currency investments involve risks; investors should thoroughly assess their risk tolerance before making decisions.

Summary of key points for AUD investment

The AUD has short-term recovery potential, but returning to a strong bull phase requires clearer macroeconomic conditions. Whether exchanging USD for AUD or investing directly, the core factors are: commodity price cycles, China’s economic momentum, and the relative movement of the US dollar. In the current environment lacking clear growth drivers, the AUD is more akin to a “rebound trade” rather than a “trend bull.”