Why is the AUD to RMB exchange rate under pressure? Analyzing the future direction of the Australian dollar from the perspective of commodity currency characteristics

AUD is the fifth-largest trading currency in the world, and the AUD/USD currency pair ranks among the top five globally. This high liquidity and low spread characteristic allow both short-term traders and long-term investors to deploy their strategies efficiently.

But you may not have noticed that the Australian dollar is actually a typical “commodity currency.” The Australian economy heavily relies on exports of bulk commodities such as iron ore, coal, and copper. When global raw material prices fluctuate, the AUD exchange rate also experiences significant swings. At the same time, the AUD is also a high-yield currency, making it a popular target for carry trades and hot money flows.

However, the performance of the AUD over the past decade has not been ideal. From the 1.05 level at the beginning of 2013, the AUD depreciated by over 35% by 2023, while the US dollar index increased by 28.35% during the same period. The euro, Japanese yen, and Canadian dollar against the US dollar also depreciated, reflecting a comprehensive strong dollar cycle behind these movements.

Why is the AUD caught in a long-term weakening cycle?

The fundamental reasons for the prolonged underperformance of the AUD are threefold:

Prolonged Strong Dollar Cycle

Since 2013, the US dollar index has continued to strengthen from its lows. The resilience of the US economy exceeded expectations, the Federal Reserve’s rate hike cycle extended, and interest rates remained high, making the dollar the most robust currency. As a commodity currency, the AUD has lost some of its shine in the face of a strong dollar.

Demand for Commodity Currencies Faces Pressure

Global trade environmental concerns have intensified, and geopolitical risks have increased, leading to long-term pressure on commodity prices. This directly weakens the support for the AUD as a commodity currency. Australia’s main export target, China, has experienced economic slowdown, and demand for iron ore, coal, and other raw materials has declined accordingly.

Interest Rate Differential Advantage Diminishing

The Reserve Bank of Australia (RBA) faces inflationary pressures. While maintaining a relatively hawkish stance, the interest rate gap with the Federal Reserve is narrowing. The previously attractive interest rate arbitrage space is shrinking, significantly reducing the AUD’s appeal.

How will the AUD/RMB exchange rate move in 2025? Three key factors determine the direction

( Factor 1: RBA Policy Orientation

The RBA maintained interest rates at 3.6% in November, signaling caution. In Q3, Australia’s CPI rose 1.3% month-over-month, exceeding market expectations, indicating that inflation is more sticky than anticipated. This reduces the likelihood of a rate cut in the short term, and relatively high interest rates can support the AUD.

However, if subsequent inflation data continue to decline, the RBA may shift to easing, which would put downward pressure on the AUD.

) Factor 2: Strength of the US Dollar

The Federal Reserve cut interest rates by 25 basis points in October, lowering the federal funds rate to a range of 3.75%-4.00%. But Chair Powell’s subsequent comments dampened market expectations for further rate cuts in December. The US dollar index has rebounded about 3% from the 96 level, and breaking through the 100 psychological threshold is increasingly likely.

The general rule is: when the dollar is strong, the AUD tends to weaken, and the two move inversely.

Factor 3: China’s Economic Recovery Strength

This is the most critical variable. Australia’s economy is highly dependent on resource exports, with China being its largest buyer. The strength or weakness of China’s economy directly determines demand for Australian iron ore, coal, natural gas, and other raw materials.

When China’s economy shows a robust recovery, resource exports from Australia increase in volume and price, providing strong support for the AUD. Conversely, if China’s recovery slows and the property market remains sluggish, the AUD will lose an important support and weaken.

How do institutions view the outlook for AUD/RMB?

Major financial institutions have differing views:

Optimists believe that Morgan Stanley expects the AUD/USD to rise to 0.72 by the end of 2025. This is based on the RBA possibly maintaining a hawkish stance and strengthening commodity prices providing support.

Neutral institutions like UBS believe that, despite resilience in Australia’s domestic economy, global trade uncertainties and changes in Fed policy may limit the AUD’s upside, with an expected level around 0.68 by year-end.

Cautious analysts like CBA Economists suggest that the AUD’s rebound may be short-lived. They forecast the AUD/USD to peak around March 2026 but possibly retreat by year-end. The dollar may be relatively weak in 2025, but as the US economy outpaces others, the dollar could strengthen again.

Short-term analysis of AUD/USD trend

Currently, AUD/USD hovers around 0.65. From a technical perspective, key resistance is at 0.6450, with support at 0.6373 and 0.6300.

Long entry opportunity: If the AUD breaks above 0.6450 and stabilizes, consider a small long position targeting 0.6464 (200-day moving average) and 0.6500 psychological level. Trigger conditions include US GDP or non-farm payrolls weaker than expected, or Australian CPI unexpectedly rising.

Short entry opportunity: If it falls below support at 0.6373, consider short positions targeting 0.6336 and 0.6300. Trigger factors include strong US data or a significant cooling of Australian CPI.

Wait-and-see strategy: Before US GDP, core PCE, and Australian CPI data release, market volatility may increase. It is advisable to reduce positions or stay on the sidelines.

Future 3-month forecast for AUD/RMB

Considering the overall stability of the RMB, AUD/CNY is likely to fluctuate between 4.6 and 4.75 in the short term.

If the RMB weakens due to domestic economic pressures or external factors, the AUD/RMB may temporarily rise to around 4.8. Key factors to watch include developments in US-China trade relations and China’s economic data.

Stable trade relations between China and Australia positively influence the AUD/RMB exchange rate. If trade policies stabilize, the AUD/RMB performance is likely to improve.

Mid- to long-term investment advice for AUD

Short-term (1-3 days): Focus on range trading between 0.6370 and 0.6450. Breakouts can be followed with trend trading, adjusting positions based on data release timing.

Medium-term (1-3 weeks): Follow the trend, paying attention to RBA policy shifts and US dollar movements. In a bullish scenario with Fed rate cuts, target 0.6550-0.6600; in a bearish scenario with US economic strength exceeding expectations, the AUD could fall to around 0.6250.

Long-term holding: If bullish on the AUD long-term, consider gradually building positions at current lows, smoothing out market volatility over time, especially after confirming an uptrend.

Overall assessment

The AUD/USD is currently in a phase of technical consolidation and fundamental tug-of-war. If data this week reinforce expectations of rate cuts, consider long positions; otherwise, be alert to potential US dollar rebound pressures.

Investors should closely monitor Fed and RBA policy developments, global trade tensions, Chinese economic data, and commodity prices. As a commodity currency, the AUD’s performance ultimately depends on commodity price trends and the relative strength of major economies. Flexibility and dynamic risk management are key to navigating AUD fluctuations.