The Australian Dollar (AUD) is facing another challenging year in 2025. Last year, it was hoped that the Australian Dollar would strengthen against the U.S. Dollar. However, over the last few months the Aussie Dollar has plummeted to new lows against the greenback. Which leads us to ask how strong the Australian Dollar (AUD) will be in 2025?
Today the Australian Dollar is at its lowest point against the U.S. Dollar since February 2020. And the trend isn’t an upward one for the moment. Some of the reasons behind the U.S. Dollar’s strength are how well the job market is improving in the U.S. This, in turn, has led to the Federal Reserve delaying a review of interest rates until the second half of 2025. It just lowered interest rates a few weeks ago.
Things may be improving in the U.S., however Jerome Powell, Chair of the Federal Reserve, is still worried about inflation. A recent story from the Australian Broadcasting Corporation highlighted the unemployment rate in Australia. It is currently at 4% and has dropped from 4.2% over the last six months. This likely means that rates will remain unchanged for the foreseeable future.
Inflation in Australia appears to be getting under control. 2.8% is the level that the Reserve Bank of Australia has published for September 2024. Not dissimilar to inflation levels in the Eurozone and almost identical to the 2.9% in the U.S.
How Do Commodity Prices Affect the Australian Dollar?
As the Australian Dollar is highly affected by commodity markets, we looked at how things may change in 2025. According to the Australian Department of Industry, Science and Resources Australia’s resource and energy exports are forecast to fall to $372 billion in 2024-25 from $415 billion in 2023-24. At the same time strong demand has seen the price of gold rise to new highs in 2024 and into 2025. Gold is one of the few areas where exports are forecast to increase in values.
Iron ore is expected to increase by around 1.7% a year. However, due to lower prices, export earnings are forecast to drop from $138 billion in 2023-24 to $108 billion in 2024-25. In 2025-26 it is forecast that iron ore export volumes may not even hit $100 billion.
Export earnings for Coal are expected to fall over the next few years. It is the same story with Gas, Oil, Lithium and Nickel. However, there are increased export volumes predicted for Copper, Uranium and Aluminium. Which may help offset the drops elsewhere.
In October 2024 the Observatory of Economic Complexity (OEC) released data about Australia. The data shows how, from October 2023 to October 2024, exports from Australia shrunk by over 10%. At the same time imports grew slightly by 0.13%. Australia’s main export destination is China. This drop in exports has been confirmed by the Australian Bureau of Statistics.
“Prices for Australia’s major export commodities fell for the third quarter in a row, with coal, coke and briquettes dropping 8.9% and metalliferous ores and metal scrap down by 8.6%.”
Some of this has been put down to a slowdown in the Chinese residential property market. Something that has affected commodities like Iron and Coal. However Gold was one of the commodities that bucked the trend. Albeit the market share of gold amongst other Australian exports isn’t enough to make an impact in falling export revenues.
What is the Outlook for the Australian Dollar?
In November last year Fitch affirmed Australia at ‘AAA’ with a stable outlook. The ratings agency has predicted a GDP growth figure of 1.1% for Australia in 2024. In 2025 this could rise to 1.7%. At the time of publishing, Fitch’s analysts forecasted that the Reserve Bank of Australia would begin cutting rates in February 2025.
A few weeks ago the World Bank priced its first benchmark of 2025 – an Australian dollar 1.75 billion 5-year bond due January 10, 2030. It was greeted with enthusiasm by bankers. It no doubt might help stabilise the AUD to a limited extent too.
The good news for Australians is that Australia isn’t the only country struggling to deal with a strong U.S. Dollar. In fact, according to the Australian Broadcasting Corporation the Australian Dollar has strengthened against the Japanese Yen in the last year. And it is doing ok against the British Pound and Euro as well. However, the AUD has fallen against the Chinese Yuan which is by far the most important currency for Australia to benchmark against.
All this means that Trump’s impending sanctions on China will have the biggest impact on the AUD in the short term. Things like the recent DeepSeek story will mean that China might have a stronger bargaining position. In a way the future of the Chinese economy and relations with Australia will dictate the price of the Australian Dollar in 2025.
How Important is the Relationship Between Australia and China?
Michelle Bullock, the Governor of the Reserve Bank of Australia stated in December 2024 how “U.S. moves against China could affect Aussie trade terms with China, potentially impacting the Aussie economy.”
Prime Minister Anthony Albanese has been pro-active in his relations with China. He most recently met Chinese President Xi Jinping at the G20 Summit in Brazil last November.
“I wish to work with you, Mr prime minister, to make our comprehensive strategic partnership more mature, stable and fruitful and inject more stability and certainty to the region and the wider world,” Mr Xi told Mr Albanese in Rio.
The performance of the Australian Dollar in 2025 will be shaped by both global and domestic factors. The strength of the U.S. Dollar affects Australian commodities due to them being priced in USD. However, with a resilient domestic economy with controlled inflation and steady growth in employment the outlook should be stable.
This stability is put under pressure by the relationship between Canberra and Beijing. China remains Australia’s largest trading partner, and as such any economic or geopolitical challenges for China could heavily influence the price of the Aussie Dollar.
Call him naïve, call him fuzzy, but with China’s currency having the biggest impact on the Australian Dollar, Albanese needs to keep the dialogue going. If this happens, the Aussie Dollar has every chance of recovering from the lows we have seen recently. If it doesn’t, and Trump’s sanctions kick in, we could see the AUD drop further to 0.6 against the U.S. Dollar.
Author: Andy Samu
Disclaimer:
The editorial team at #DisruptionBanking has taken all precautions to ensure that no persons or organizations have been adversely affected or offered any sort of financial advice in this article. This article is most definitely not financial advice.
See Also:
How Strong Will The Australian Dollar (AUD) Be In 2024? | Disruption Banking
How strong will the Australian Dollar be in 2023? | Disruption Banking
How Strong Will The Japanese Yen (JPY) Be In 2025? | Disruption Banking
How Strong Will The Chinese Yuan (CNY) Be In 2025? | Disruption Banking
How DeepSeek Sparked a Tech Selloff in the U.S. | Disruption Banking
One Response
We have so many of our own natural resources and should be one of the most wealthiest countries in the world. Why did we have to sell off to so many overseas corporations? The government should have prevented this and financially assisted to help keep them Australian. We’ve got plenty of our own petroleum. Just because of what is happening overseas should not be an excuse to put prices up.