Last updated: January 20th, 2025
Relative to the US dollar, the Australian dollar dropped close to five-year lows at the start of 2025. The AUD/USD fell to around 61.5c in January.
A stronger greenback, weak Chinese growth, and a potential rate cut domestically, are to blame.
US employment data was stronger than expected for December 2024 — with unemployment remaining low at 4.1%. Additionally, the US Federal Reserve has made it clear it won’t rush further cash rate cuts.
Let’s explore the factors to watch and find out whether the Aussie will gain more ground.
| Key Takeaways: |
|---|
| After a weak start in 2025, the outlook is for the AUD to strengthen modestly against the US dollar throughout 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 Federal Reserve, 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 62c at the time of writing. Barring any major catalysts, the general outlook for the AUD/USD exchange rate for 2025 is for a modest strengthening Australian of the dollar.
(Related: Will Australia Slip Into A Recession In 2025?)
6-Month Forecast For AUD/USD.
Some major banks are forecasting a slight decline in the Australian dollar exchange rate over the first half of 2025:
- Westpac’s economic report issued the week of December 16 2024 predicted the AUD would be worth 0.65 US cents by March 2025 and remain at 65c by June 2025.
- NAB’s FX forecast as of January was that the AUD/USD exchange rate would reach 0.65c by March 2025 and fall to 0.64c by June 2025.
- ING is forecasting the exchange rate will be at US$0.65 in Q1 2025, and dip to 64c by June 2025.
With core inflation now in the target range at 2.8%, there’s considerable political pressure on our central bank to cut its policy rate soon, especially in the context of global policy easing.
In addition to the US, the following economies initiated cutting cycles in 2024:
- United Kingdom.
- The EU.
- China.
- Canada.
- New Zealand.
- Switzerland.
- Denmark.
But the latest data from the US has eased fears of an economic slowdown, bolstering the USD and leading to falls in Australian financial markets.
Kyle Rodda, Capital.com analyst, said a stable US job market adds to the case for a pause in US rate cuts, and extends the timeline of a potential pause.
If the Reserve Bank of Australia (RBA) decided to cut interest rates at their first meeting in 2025, it could further increase the appeal of the USD against the AUD. But that’s far from assured.
Rodda said a softer AUD could hamper the RBA’s efforts to keep inflation on target, due to rising import costs.
AMP’s chief economist, Dr Shane Oliver, said the AUD had fallen much less on a trade-weighted basis than in comparison to a stronger $USD, which posed less of a threat to local inflation.
Oliver said causes for concern in 2025 include:
- Uncertainty around rate cuts,
- Recession risks,
- Geopolitical risk, and
- Potential for a global trade war that amplifies the Chinese economy’s woes.
Macquarie Bank analysts also said a slide to US$0.60 was possible – if US tariffs trigger a trade war that upsets equities markets and forces the RBA to cut rates quickly to boost the economy.
Above: Traders are less optimistic about policy easing, expecting a 25 basis point cut by April 2025.
(Related: AUD To Euro Forecast: More Surprises Ahead?)
In the near-term, ING FX strategists Francesco Pesole and Chris Turner said in they were mildly bullish on the AUD, expecting it to hover around 62c in coming months.
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 against the US dollar:
- Westpac predicts that the Aussie’s value will increase to 0.66c by December 2025.
- NAB puts the AUD/USD higher at 0.67c by December ’25.
- ING thinks the Australian dollar will slide to US$0.63 by year-end 2025.
(Related: Why Is Living In Australia So Expensive?)
How Did The AUD Perform In 2024?
The AUD/USD’s value has 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.
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). |
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).
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 interest rate cuts in early to mid 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 — including at its most recent December meeting — due to inflation “proving persistent”.
According to Westpac’s Chief Economist Luci Ellis, a depreciating AUD/USD exchange rate was less important to the RBA than whether inflation is coming down quickly enough and labour market data.
The RBA is also more interested in the trade-weighted index (TWI) to measure trends in imported inflation, Ellis argues.
2. US Fed's Interest Rates.
The RBA cash rate currently sits at 4.35%, 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 policy easing in the US ahead of a similar move by Australia’s central bank has been impacted by:
- Expectations that further Fed cuts will be paused, due to a robust US economy.
- 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 late 2024 indicated an annual decline expected to be the worst in over two decades.
Important!
Chinese stock market gains spurred by Government spending hopes were pared back in October 2024 as the new stimulus plans failed to inspire investor confidence.
The AUD’s value slid as a result, with the Aussie changing hands at around US$0.65 at the time.
In addition to doubts around the impact of China’s fiscal spending:
- Growth forecasts for the Chinese economy range between 4.5%-4.8% 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 China needs to do more to increase confidence, as policy announcements made in November failed to turn its economy:
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: Why The Interest Rates May NOT Drop 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 by close to AU$30 billion in 2024 (down to $107 b) and earnings would fall to $99b this year.
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 $US100 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.
- Policy moves by new US President Donald Trump and how it impacts tensions with China.
- 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, primarily because 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 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.
But the US currency’s rally since Trump’s re-election has been bolstered by signs of robust economic growth 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.