The Australian dollar is anticipated to weaken in the coming months as the Reserve Bank of Australia (RBA) embarks on a substantial rate-cutting cycle. The central bank has reduced its cash rate for the first time in this phase, signalling the end of the most prolonged period of interest rate increases in three decades. This decision follows nearly three years of monetary tightening, during which rates rose by a total of 4.25%. However, despite these aggressive hikes, the peak interest rate remains the lowest seen in 30 years, according to the report.
Although the Australian dollar has experienced a modest rebound against the US dollar in recent weeks, analysts suggest this is more a reflection of USD weakness rather than any inherent strength in the AUD. Against most other major global currencies, the Australian dollar has continued its downward trajectory. Experts at Commerzbank predict a further decline, forecasting AUD-USD to fall to 0.60 by the end of 2025 and 0.58 by late 2026.
Despite the sustained rise in interest rates over the past 33 months, Australia’s labour market has shown remarkable resilience. Employment growth has remained strong, with only minor indications of a slowdown—an unusual trend compared to previous tightening cycles.
Analysts caution that the Australian dollar is likely to face considerable depreciation, particularly against a strengthening euro. Commerzbank projects the EUR-AUD exchange rate to climb from 1.67 by mid-2025 to 1.90 by late 2026, pointing to a sharp fall in the AUD’s relative value. With interest rates being cut more rapidly than expected, ongoing global economic uncertainties, and a slowdown in Chinese demand, the Australian dollar may encounter further downward pressure in the months ahead.
The Australian dollar is also under strain due to ongoing economic uncertainty and lingering deflationary risks in China, its largest trading partner, as investors await crucial policy updates from Beijing.
Over the past year, the GBP/AUD exchange rate has risen by 5.84%, fluctuating within a 52-week range of 1.8897 to 2.0639.
