Last updated: June 4th, 2025
Relative to the US dollar, the Australian dollar dropped close to five-year lows at the start of 2025. It’s been on a turbulent path since then:
- The AUD/USD fell to around 61.5c in January.
- In February it hit a high of 64c.
- It plummeted to below 60c in April.
- On May 26, it lifted to over 65c.
A weaker greenback and turbulent financial market reactions to tariff threats, are largely to blame.
While the US economy remains resilient, the US Federal Reserve has made it clear it won’t rush further cash rate cuts.
Meanwhile, the Aussie has appreciated in spite of two rate cuts domestically already in 2025 (with more pencilled in).
Let’s explore the factors to watch and find out whether the Aussie will gain more ground.
| Key Takeaways: |
|---|
| After a soft start to 2025, the AUD is expected to strengthen modestly against the USD over the year. |
| Depreciation risks include doubts over Chinese growth and the impact of Trump policies and fiscal spending in the US. |
| RBA’s rate differential with the US Fed – which looks to have paused its easing cycle – may hinder the AUD’s appreciation. |
Tip: Zoom out for better historical context of AUD/USD performance.
Australian Dollar Prediction: 2025.
The AUD/USD was trading at around 65c at the time of writing — a six-month high.
The general outlook for the AUD/USD exchange rate for 2025 is for a modest strengthening of the dollar.
But further twists and turns from a Trump-led US economy are likely.
- Key downside risks for the USD include further uncertainty related to tariffs and growing de-dollarisation across Europe and other nations.
- Factors to watch related to AUD depreciation include worsening global growth (and especially China), and potentially deeper rate cuts domestically.
(Related: Will Australia Slip Into A Recession In 2025?)
6-Month Forecast For AUD/USD.
Major banks are forecasting a gradual increase in the Australian dollar exchange rate over the six months to December 2025:
- Westpac’s economic report issued the week of 26th May, 2025, predicted the AUD would be worth US$0.65 by September 2025 and US$0.67 by December 2025.
- NAB’s FX forecast as of May was that the AUD/USD exchange rate would reach 0.68c by September 2025 and rise to 0.70c by December 2025.
- ING is forecasting the exchange rate will be at US$0.65 in Q3 and Q4 of 2025.
Core inflation is now at 2.9% in Australia, and monetary policy easing is underway from our central bank.
In contrast, the US Fed has held rates steady since December 2024, amid uncertainty over Trump’s policies and tariffs.
Did You Know?
Bloomberg reported in May that two Fed officials expect rates to remain at 4.25%–4.50% until September, citing economic uncertainty.
Higher interest rates typically attract investors.
Despite two 0.25% rate cuts in February and May – bringing the cash rate to 3.85% – the AUD remains more attractive than the USD.
Above: Markets expected higher US growth under Trump, pushing its dollar higher, but all the gains were lost amid tariff chaos.
Luke Laretive from Seneca Financial Solutions said that rather than a strong AUD, it’s a story of US dollar weakness and foreign investor capital flows.
But if or when uncertainty spikes again, the Aussie could reverse its gains.
The AUD/USD exchange rate dived to 59.15c in early April based on heightened fears on the eve of Trump’s Liberation Day tariffs being implemented.
NAB Senior FX Strategist, Rodrigo Catril said the AUD’s depreciation on Friday, 4th April, was “the seventh-biggest drop in the Aussie” since it became a floating currency.
AMP’s chief economist, Dr Shane Oliver, said in May that the AUD would be “buffeted” by:
- The negative impact of US tariffs and a potential global trade war; and
- The potential positive arising from continued devaluation of the US dollar.
Above: Continued declining investor confidence in the US seems likely.
Oliver warns, “the tariff war is far from over,” and the fact that Trump’s tax cut bill (OBBBA) has only added to fears of a looming debt crisis.
ING FX strategist Francesco Pesole said in a May update that the bank’s ‘fair value’ model indicates the greenback is “highly undervalued” — by around 3% versus the Aussie dollar.
(Related: AUD To Euro Forecast: More Surprises Ahead?)
ING’s model looks at the past year’s FX correlations with rates and equities, but Pesole acknowledges the USD “isn’t trading in line with the classic market drivers.”
Above: Historical snapshot of bilateral and Trade-Weighted Index (TWI) AUD/USD exchange rates. Note that the TWI is more stable.
12-Month Forecast For AUD/USD.
Looking further ahead, some bankers expect the Australian dollar to appreciate further against the US dollar:
- Westpac predicts that the Aussie’s value will increase to 0.69c by June 2026.
- NAB puts the AUD/USD higher at 0.73c by June 2026.
- ING thinks the Australian dollar will remain steady at US$0.65 by mid-year 2026.
(Related: Why Is Living In Australia So Expensive?)
How Did The AUD Perform In 2024?
The AUD/USD’s value hovered between 64 – 66c throughout 2024.
With the US dollar maintaining its stability and China’s economic activity not gaining steam, a sustained strengthening of the Australia dollar seemed out of reach.
However, the Aussie swung wildly in the second half of the year following:
- US recession fears in August that tumbled global stock markets, heralded rate cuts by the Federal Reserve, and prompted a hawkish tilt by the Reserve Bank of Australia (RBA). The Aussie dropped as low as US63c in early August.
- The Fed’s large 50 basis point cut to the US policy rate in September, bringing renewed optimism around a soft landing — combined with extra stimulus measures from China boosting hopes of growth. The AUD/USD was up around 0.68 – 0.69 in late September/early October.
Did You Know?
The AUD/USD currency pair often rises and falls along with the price of gold (read our guide to buying gold in Australia).
How Is The AUD/USD Exchange Rate Measured?
The RBA explains three key ways to measure an exchange rate:
| Bilateral exchange rate | The most common method, represented by currency pairs that quote one currency’s value relative to another ( e.g., AUD/USD). |
| Cross rate | A rate calculated by reference to a third currency. For instance, determining the EUR/AUD by multiplying EUR/USD by AUD/USD. |
| Trade-weighted index (TWI) | Offers a broader yardstick of trends in a currency’s value, by comparing it against the weighted average value of a ‘basket’ of currencies from trading partners (weighted based on the share of trade with those countries). |
What Affects The Value Of The Aussie Dollar?
Throughout 2025, drivers of price movements for the Australian Dollar will include:
1. Domestic Economic Conditions.
In particular, investors monitor:
- Interest rates.
- Inflation (CPI).
- Consumer spending data.
- Labour market figures (recent wage growth has not been on par with inflation).
Above: The latest economic data supports the case for additional interest rate cuts in 2025.
Interest rates, inflation and unemployment are particularly important, because:
- When interest rates rise, as now seems less likely, our currency delivers a higher return than other major currencies, increasing demand for AUD and its value.
- When purchasing power is reduced (i.e. when you get less ‘bang’ for your Aussie dollar compared to a US dollar), the AUD’s value will likely decline.
- Low unemployment suggests a robust economy and strengthens the currency.
Of course, a track record of cooling inflation is key to a rate-cutting cycle getting underway.
Did You Know?
The Reserve Bank of Australia (RBA) raised the cash rate to 4.35% in November 2023 and has held at that level until its February 2025 meeting — due to inflation “proving persistent”.
Westpac Chief Economist Luci Ellis has previously said that a falling AUD/USD isn’t the RBA’s main concern.
What matters more is whether inflation is easing quickly enough—and what the labour market data shows.
In its May Outlook, the RBA stated that trade conflict would likely be disinflationary, but its worst-case scenario suggests a recession.
2. US Fed's Interest Rates.
The RBA cash rate currently sits at 3.85%, while the US Federal Reserve's recent series of cuts reduced rates to 4.25% - 4.50% — down from a 22-year high of 5.5%.
Important!
The rate differential can encourage investor funds to flow out of the Australian economy, increasing demand for the USD and devaluing the Australian dollar.
Any benefit from differing rates of policy easing has been impacted by:
- Expectations that further Fed cuts will be paused till late 2025, due to uncertainty and risk to US inflation and jobs.
- A negative outlook for China, with traders often treating the AUD as a proxy for Chinese prospects.
Did You Know?
The Australian dollar has a floating exchange rate and is considered a dirty float, as the RBA can intervene in the foreign exchange market to influence the price.
3. China's Economic Slowdown.
The world’s second-largest economy is our largest export market.
Above: The IMF forecasts a potential -0.2% reduction in China’s GDP in 2025 from a trade war.
Its stock market has performed poorly since Trump’s re-election and its economy continues to grow more slowly.
Industrial production data from April 2025 showed output had fallen to its lowest since December 2023.
Important!
Chinese stock market barely moved as new stimulus plans announced in May failed to inspire investor confidence.
In addition to doubts around the impact of China’s fiscal spending:
- Growth forecasts for the Chinese economy have lowered to between 4.0%-4.6% after it saw a weak growth of 4.9% in 2024.
- Export demand for Chinese goods could be scuttled by President Donald Trump’s proposed tariffs.
- Domestic spending has become more cautious, with weak demand creating deflation risks.
(Related: Best Share Trading Platforms In Australia).
A market outlook report from Commbank said Australia was better placed to weather the trade storm, but flow-on effects from harms to China would be felt:
Important!
Not only does a poorly performing Chinese economy reduce demand for the Aussie dollar, it can encourage capital flows to the US, further strengthening the greenback.
4. Terms Of Trade And Commodity Prices.
An increased demand for Australian exports means an increased demand for AUD. But export volumes and prices hinge on global demand.
(Related: Will Interest Rates Drop Below 3% In 2025.)
Iron ore is Australia’s largest export, and China is our largest export market.
A recent Australian Government resources update posits that lower iron prices would reduce national export earnings from $117 billion in 2024-25 to $109b in 2025-26.
Important!
China has a mounting inventory of iron ore despite a contraction in steel output. Combined with surplus iron ore on the market in 2025 — the commodity’s price is tipped to trade below US$95 a tonne this year.
Whether we like it or not, China’s thirst for our products affects our prosperity and currency strength.
Volatility in commodity prices driven by a range of other factors (e.g., supply chain disruptions or natural disasters) can also create volatility in the AUD foreign exchange rate.
- How much Australian exporters can charge for their goods directly impacts how many Australian dollars are required to purchase the same quantities. More demand for our currency lifts the exchange rate.
- Valuable commodity exports incentivise foreign investment in companies producing those commodities. Additional capital inflow from overseas can further boost demand for the Aussie.
Important!
Of course, some exporters and multinationals benefit from a softer AUD, through more competitive prices or from the favourable conversion of offshore earnings into USD.
5. Global Stability And Geopolitics.
Australia has a stable government, but our financial markets are not immune to increasing instability globally.
Important!
A so-called ‘risk-on’ currency like the AUD doesn’t tend to perform well in times of increased fear, uncertainty, and doubt.
Currency swings could be impacted in 2025 by:
- Whether the US slides back into recession risk territory.
- Trade negotiations by new US President Donald Trump and how it impacts tensions with China and the EU.
- The Russian invasion of Ukraine, which has contributed to increased global oil and gas prices (affecting inflation), and continues to negatively impact sentiment.
- Middle Eastern conflicts, including the Israeli-Palestinian conflict, escalation of tensions between Israel and Iran, and attacks by Houthi militants on civilian ships in the Red Sea.
Increased geopolitical turmoil can significantly disrupt international trade and fuel ongoing concern about oil prices, which could increase inflationary pressure and a flight-to-safety by investors.
How Stable Is The AUD To USD Exchange Rate?
Historically, the AUD/USD exchange rate has averaged around 0.70-0.75c.
However, it’s dropped sharply on a number of occasions, such as following the attack on New York’s Twin Towers in 2001 and recently during the COVID lockdowns in 2020 when it fell to an 18-year low of 0.55 US cents.
It appreciated against the US dollar in the decade up to 2011, largely driven by Australia’s mining boom, increasing from below US$0.50 in 2001, reaching parity in 2010, and then a peak of over $1.10 in 2011.
(Related: How To Buy Bonds In Australia).
After starting 2023 around the US$0.68c range, the Australian dollar weakened throughout the year
Two likely causes: both local and global economic conditions were not positive, and our currency is risk-sensitive.
Did you Know?
When markets fear a global recession, investors have tended to shy away from the Australian Dollar in favour of the US Dollar, a "safe haven". This reduces the demand for the AUD on the foreign exchange markets, weakening its exchange rates.
Will The Australian Dollar Exchange Rate Strengthen In 2025?
Broadly, the predictions point to a slight rise in the AUD relative to the USD, compared to its weak start to 2025.
The US currency has lost gains made in the rally prior to Trump’s re-election, damaged by Trump’s see-sawing decisions on tariffs.
If trade tensions settle, the USD could be bolstered by signs of economic resilience and the fact that US interest rate cuts may be more gradual than anticipated.
How Trump’s policies actually play out following his inauguration on January 20, and what that means for our trading partners in China, will be a key influence on the Aussie’s value.
Jody
Nelson says:
I attempted to use the “hack” to dodge conversion fees, but sadly after converting AUD to USD on a Wise account, there doesn’t seem to be a way to deposit that money into eToro; i.e. eToro recently disabled Wire transfers and Wise doesn’t support SWIFT transfers for sending USD to a bank in the US?
John Keys says:
CMC Invest are an abysmal in turning around new accounts.
Over 1 month to setup up an account with an investment trust, and still waiting. I was promised 5 business days.
Reg Watson says:
Given that China’s economy is going down the toilet how the heck do we expect an appreciation of the Aussie in 2024 ? We are tied to China.
Regular citizen says:
Unless you can see into the future or time travel, try to refrain from predicting a stronger AUD. It’s now Dec 2025 and contrary to all you top earning ‘economists ‘, the AUD ain’t shit.