Last updated: December 9th, 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 slid to around 61.5c in January.
- In February, it hit a high of 64c.
- It plummeted to below 60c in April.
- On 26th May, it lifted to over 65c.
- It peaked at around 67c in September.
If you were trying to “buy the dip” or time a breakout, you got hammered with a brutal sequence of false starts, sudden reversals, and emotional traps.
Trump’s tariff shocks and the Federal Reserve’s pivot toward rate cuts knocked the USD down nearly 11% in the first half of 2025.
Tip: Zoom out for better historical context of AUD/USD performance.
Yet the Aussie climbed despite suffering three interest-rate cuts at home. The unusual divergence left traders questioning whether the rally was built on solid ground.
Or thin air.
But the big question remains-
Is the Aussie primed for a breakout – or is it about to forfeit all gains it clawed back this year?
Let’s explore the forces that will decide whether the $0.70 dream is realistic.
| Key Takeaways: |
|---|
| After a soft start to 2025, the AUD has strengthened 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 has further easing pencilled in – may support the AUD’s continued appreciation. |
Will The AUD Break Out In 2026?
The AUD/USD was trading at around $US0.645 at the time of writing. It traded at an average of around 65 US cents between June and December 2025.
The Aussie experienced periods of strength against the greenback in late 2025 on the back of:
- Weakness in the US dollar due to economic uncertainty, political volatility, weakening jobs data, inflation worries, and delayed policy rate easing.
- Lower expectations of any additional cash rate cuts by the Reserve Bank of Australia (RBA), after high CPI prints in September and October and steady unemployment numbers.
- Solid commodity prices, with iron ore’s value holding around the US$100 a tonne mark, and booming Chinese stock markets, with the Hang Seng Index up 30% over the year.
The Aussie hit a 10-month high of around 67 US cents, coinciding with the US Federal Reserve’s September meeting, which heralded the US’ first interest rate cut of 2025.
(Related: Will Australia Slip Into A Recession In 2026?)
The general outlook is for the AUD/USD exchange rate to close out 2025 higher, with a continued strengthening of the Aussie dollar into the first half of 2026.
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, cuts from the Fed, recession and debt load risks, and growing de-dollarisation across Europe and other nations.
- Factors to watch related to AUD depreciation include worsening global growth (and especially China), or a sharp slowdown in demand or spike in the jobless rate that could prompt a dovish tilt from the RBA.
6-Month Forecast For AUD/USD.
Major banks are forecasting a gradual increase in the Australian dollar exchange rate over the six months to June 2026:
- Westpac’s economic report issued the week of 24th November, 2025, predicted the AUD would be worth US$0.66 by December 2025 and US$0.69 by March 2026.
- NAB’s FX forecast as of November was that the AUD/USD exchange rate would reach 0.67c by December 2025 and rise to 0.71c by June 2026.
- ING is forecasting the exchange rate will be at US$0.66 in Q4 2025 and rise to US$0.68 by Q2 of 2026.
The latest Consumer Price Index (CPI) from October 2025 shows core inflation is now at 3.3% in Australia.
That follows a higher-than-expected CPI result for the September quarter.
The resurgence in price growth puts inflation well out of target range. It could mean monetary policy easing from our central bank is over.
In contrast, the US Fed has only recently started its easing cycle. The Fed:
- Held rates steady at 4.25%-4.5% between December 2024 and September 2025, amid uncertainty over tariff impacts (and despite pressure from Trump).
- Cut its policy rate by 0.25% in September 2025, and a further 25 basis points in October, bringing the rate to 3.75%-4.0%. It next meets on 9th-10th December.
Above: The probability of a rate move by the Fed in December is high based on interest rate futures trading.
With division among the Fed’s committee members, there are mixed views about the chances of a December cut.
But markets were pricing in an 80% chance of a cut as of November 2025.
Did You Know?
Higher interest rates typically attract investors.
Despite three 0.25% rate cuts in February, May and August – bringing our cash rate to 3.60% – the AUD has been more attractive than the USD.
Commbank economists suggested in a research note published in September 2025 that the AUD would move higher against the USD as the American currency bottoms out in early 2026.
But it won’t last.
The greenback’s rebound will be aided by tax cuts, interest rate cuts, investment from overseas, and the fading impact of tariffs, according to Commbank.
Downsides for the AUD include an expected drag on Australian commodity prices.
Above: USD gains were lost amid tariff chaos, as shown by a steep decline in the US Dollar Index, which tracks the greenback’s price against 6 foreign currencies.
A G10 FX Outlook 2026 report released by ING on 10th November argues the Australian dollar should outperform.
(Related: Best Cryptocurrency Exchanges In Australia.)
ING foresees “respectable” growth prospects for China and perhaps just one 0.25% cut from the RBA in Q1 2026.
But if or when uncertainty or US-China tensions spike again, the Aussie could reverse its gains.
The AUD/USD exchange rate dived to 59.15c in early April 2025 based on heightened fears on the eve of Trump’s Liberation Day tariffs being implemented.
(Related: AUD To Euro Forecast: More Surprises Ahead?)
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.
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 rise to US$0.70c by September 2026 and 71c by December.
- NAB puts the AUD/USD higher at 0.72c by the third quarter of 2026, declining to 71c by the end of 2026.
- ING thinks the Australian dollar will remain steady at US$0.68 in Q3 2026 and reach 69c by year-end 2026.
(Related: Why Is Living In Australia So Expensive?)
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). |
The AUD Signals Most People Miss.
Throughout 2026, 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 makes additional interest rate cuts in 2026 doubtful, and has put hikes back into contention.
Interest rates, inflation and unemployment are particularly important, because:
- When interest rates rise, 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.
In its November Outlook, the RBA stated the economy had been more resilient in the face of global trade conflicts than expected.
(Related: Best Share Trading Platforms In Australia).
But domestic demand has seen inflation flare up again.
Commbank Chief Economist, Luke Yeaman, said in a note released 25th November 2025 that recent data had, in fact, raised the risk of interest rate hikes in 2026.
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).
Although the bank's current forecast is for no change to the cash rate over 2026.
Hikes only come into play if capacity is more constrained than anticipated, or economic activity heats up and outstrips supply.
2. US Fed's Interest Rates.
The RBA cash rate currently sits at 3.60%, while the US Federal Reserve's recent series of cuts reduced rates to 3.75% - 4.00%.
It’s unclear how many additional cuts are coming, but ING estimates that Australia will have the highest central bank rate in G10 by mid-2026.
Important!
The rate differential can encourage investor funds to flow out of the American economy, increasing demand for the AUD and devaluing the US dollar.
Any benefit from differing rates of policy easing could be impacted by:
- Heightened fears of rate rises in Australia or delays to Fed cuts due to US inflation and jobs data.
- 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.
AMP economist My Bui said in October 2025 that Chinese economic activity had been losing momentum and retail spending was sluggish.
Important!
China’s GDP growth slowed to 4.8% according to July-September quarter 2025 data, compared to 5.2% the previous quarter. The country is aiming for annual growth of 5%.
However, Bui said China’s economy was holding up:
It also has a ‘trump card’. It has scaled up production of rare earth commodities (which the US needs and largely imports) and key minerals involved in EV, chip, and energy infrastructure.
Above: China has the upper hand in trade negotiations with the US for now due to its majority production of minerals and rare earths.
On 21st November, global investment bank Goldman Sachs revised up its forecast for China’s 2025 real GDP growth from 4.9% to 5%, and made even larger increases to predictions for 2026 and 2027.
Continued strength in China’s manufacturing and exports have been boosted by two recent developments, the bank argues:
- A new Five-Year Plan proposal for China that calls for upgrades to industries and growth in new energy.
- An agreement between President Trump and President Xi on tariffs that reduced the potential 100% rate on Chinese goods.
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 2026?)
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 $113b in 2025-26 to $103 billion in 2026-27.
Important!
China has a mounting inventory of iron ore despite a contraction in steel output. But with new supply of iron ore from other regions — the commodity’s price is tipped to soften and trade around US$93 a tonne in 2026.
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 2026 by:
- Whether the US slides back into recession risk territory.
- Trade negotiations by new US President Donald Trump and how it impacts global tensions.
- 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 whether peace can hold in the Israeli-Palestinian conflict, and potential escalation of tensions with Iran and Houthi militants 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 more 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.
After starting 2023 around the US$0.68c range, the Australian dollar weakened throughout the year.
(Related: How To Buy Bonds In Australia).
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.
Is The Australian Dollar Set To Rise?
Broadly, the predictions point to a slight rise in the AUD relative to the USD over 2026.
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.
But trade tensions appear to be settling, meaning the USD could be bolstered.
Especially if the data indicates economic resilience and the fact that US interest rate cuts may be more gradual than anticipated.
Trump’s policies, inflation risk in both the US and Australia, and China’s growth levels, will all influence 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.