The Australian dollar's decade-long decline remains difficult to reverse. Where is the turnaround opportunity in 2026? An analysis of the AUD-TWD exchange rate outlook

The Australian Dollar (AUD) is the fifth most traded currency in the world, and the AUD/USD exchange rate consistently ranks among the top five in global trading volumes. Its high liquidity and tight spreads attract countless short-term traders and long-term investors. More notably, the AUD has long been regarded as a high-yield currency, often targeted for arbitrage trading and hot money flows.

However, looking over the past decade, the AUD has actually been on a downward trend. Even occasional rebounds have struggled to alter the overall decline. What’s going on here?

Ten Years of 35% Depreciation: Why Is the AUD Deep in a Weakness Trap?

Data speaks volumes. Starting from around 1.05 in early 2013, by the end of 2023, the AUD/USD has depreciated by over 35%. During the same period, the US Dollar Index (DXY) rose by 28.35%. This is no coincidence but a full demonstration of a strong dollar cycle.

Major currencies like the euro, yen, and Canadian dollar also depreciated against the dollar, indicating that the AUD’s weakness is part of a broader dollar appreciation trend.

When extending the timeline, the AUD’s performance against the dollar varies significantly across different periods:

• 2009-2011: China’s robust economic recovery boosted commodity demand, and Australian interest rates were notably higher than in the US, pushing the AUD close to 1.05.
• 2020-2022: A global commodities bull market and record-high iron ore prices, coupled with the Reserve Bank of Australia (RBA) beginning rate hikes, drove the AUD above 0.80.
• 2023-2024: China’s sluggish recovery, commodity price fluctuations, and narrowing interest rate differentials kept the AUD generally weak.
• 2025 and beyond: Expectations of rate cuts and moderate commodity rebounds could turn the tide for the AUD, making it a market focus.

Regarding 2025, the AUD/USD has risen approximately 5-7%, reaching around 0.6636 at one point. It looks decent at first glance, but over a longer horizon, the AUD remains relatively low historically.

Why Can the AUD Rebound but Still Fail to Rise?

The key lies in threefold dilemmas:

First, the fate of commodity currencies. Australia’s export structure heavily depends on iron ore, coal, and energy. Essentially, the AUD is a “commodity currency.” When Chinese demand weakens, commodity prices struggle to stay strong, dragging the AUD down. Tightening US tariffs and escalating global trade tensions further undermine Australia’s export outlook.

Second, the erosion of interest rate advantage. The AUD’s attractiveness in the past was driven by relatively higher interest rates. Now, with the Federal Reserve maintaining high rates, and expectations of rate cuts in Australia rising, the interest differential is shrinking. As the “high-yield currency” halo fades, the AUD loses a major support.

Third, lack of confidence in the capital markets. Australia’s domestic economic growth is sluggish, and asset attractiveness is relatively low. Investors tend to favor the US economy or other risk assets. Every time the AUD approaches previous highs, selling pressure increases, indicating that market sentiment toward the AUD’s medium- to long-term prospects remains cautious.

In simple terms, the AUD is caught in a “rebound but no clear trend” dilemma. It’s not so bad that it can’t be traded, but not so good that it warrants long-term holding. It’s easily influenced by external factors rather than driven by its fundamentals.

Can the AUD Strengthen? Three Key Factors Must Act Simultaneously

If you want to assess whether the AUD has medium- to long-term upward momentum, focus on three core variables:

1. Will the RBA’s interest rate policy restore the interest rate advantage?

The Reserve Bank of Australia (RBA) currently has a cash rate of about 3.60%. Markets are beginning to price in a possible rate hike in 2026. The Commonwealth Bank of Australia even forecasts a peak rate of around 3.85%.

If inflation remains sticky and the employment market stays strong, the RBA will likely maintain a hawkish stance, helping rebuild the AUD’s interest rate advantage. Conversely, if rate hike expectations fade, the AUD’s support will weaken significantly.

2. Can China’s economy truly recover?

This is the “external engine” for the AUD. When China’s infrastructure and manufacturing activity pick up, iron ore prices tend to rise in tandem, and the AUD will quickly reflect this in its exchange rate. But if China’s recovery falters, even short-term commodity rebounds may be followed by declines in the AUD. In other words, whether the AUD can sustain an upward trend largely depends on whether China’s demand can be genuinely activated.

3. US dollar trend and risk sentiment

The Federal Reserve’s policy cycle remains central to global FX markets. A dovish environment tends to weaken the dollar, which is usually favorable for risk currencies like the AUD. But if risk aversion rises and capital flows back into the dollar, the AUD can come under pressure even if its fundamentals are stable. Currently, weak global demand and uncertain energy prices make investors prefer safe-haven assets, exerting invisible pressure on the AUD.

Core conclusion: For the AUD to break out into a genuine medium- to long-term bull trend, three conditions must be met simultaneously—hawkish RBA policy, real demand revival in China, and structural US dollar weakness. Meeting only one or two of these makes the AUD more likely to oscillate within a range rather than trend upward unilaterally.

How Do Major Institutions View the AUD Outlook for 2026?

Market forecasts for the AUD are notably divided:

Optimists: Morgan Stanley projects the AUD/USD could rise to 0.72, mainly based on the RBA’s hawkish stance and a rally in commodities. The Traders Union’s statistical model shows 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 if Australia’s labor market remains strong and commodities demand recovers.

Conservatives: UBS believes that despite Australia’s resilience, global trade uncertainties and Fed policy shifts could limit the AUD’s gains, with forecasts around 0.68 at year-end. Economists at the Commonwealth Bank are more cautious, predicting the AUD will peak around March 2026 and then possibly decline again.

Market consensus: 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.

From a practical trading perspective, the AUD in the first half of 2026 is likely to oscillate between 0.68 and 0.70, with China’s data and US non-farm payrolls being key volatility triggers. It’s unlikely to fall sharply (given Australia’s solid fundamentals and relatively hawkish RBA), nor to surge above 1.0 (due to the dollar’s structural advantage). The most probable scenario is repeated testing within a defined range.

What Cross-Border Investment Insights Does the AUD/TWD Trend Offer?

For Taiwanese investors, the AUD/TWD exchange rate trend is also worth noting. A weakening AUD will directly depress the TWD/AUD rate, and the AUD/TWD often moves in sync with global risk sentiment and commodity cycles.

In other words, if you’re considering investing in Australian assets or assets denominated in AUD, current lows might present opportunities. But only if you recognize the limitations of the AUD—suitable for short-term trading, but long-term holding requires patience.

Investment Logic for the AUD: Who Is It Suitable For?

The AUD/USD’s high liquidity, clear volatility patterns, and transparent economic structure make medium- to long-term trend analysis relatively straightforward.

For traders, the AUD offers opportunities for both long and short positions. Bullish or bearish markets can both present profit potential. But remember: forex trading is inherently high-risk. Leverage amplifies losses, so capital management and risk control are always paramount.

Summary of the AUD Outlook

The AUD’s commodity currency nature remains prominent, closely linked to iron ore, coal, and copper prices. In the short term, the RBA’s hawkish stance and strong commodity prices provide support. But in the medium to long term, global economic uncertainties and dollar rebound risks will limit upside potential and could trigger increased volatility.

While FX markets are volatile and predicting exchange rates precisely is challenging, the AUD’s high liquidity, regularity, and economic structure make medium- to long-term judgment more accessible. To profit from the AUD, focus on understanding the dynamics of these three key factors rather than blindly betting on a specific direction.