The Australian dollar has been in a downward trend against the US dollar in the past few months. During the first half of the year, the currency appreciated against the dollar, but the recent depreciation has taken the Aussie to its lowest point since October 2008. In the past two weeks, however, it has been on a rise, with the exchange rate gaining 1.35% over the weekend.

Several factors have contributed to the underperformance of the Australian dollar. One of them is the global economy. Another is the US-China trade tensions. This uncertainty has also been holding back the AUD/USD exchange rate. Other factors include commodity prices, interest rate differentials, and market risk aversion.

China remains Australia’s largest trading partner. But its economic strength has begun to decline. As a result, Chinese demand has started to affect the value of the Aussie.

There are three key factors that will impact the direction of the AUD/USD exchange rate. The Australian economy is expected to grow at a solid rate in the coming years, but the growth is still forecast to slow. Growth is expected to slow to 1% or less next year, which is not a promising story for trade-sensitive currencies. Among other things, the real estate crisis is a major drag on growth.

Another factor that is likely to play a role in the AUD/USD exchange rate is the Federal Reserve’s monetary policy. The Fed’s Board of Governors has signaled that they are more likely to hike rates in the future than they have in the past. However, in the past few weeks, the Fed has begun to signal that they will hold off on any more hikes until at least 2023. While this may be a good thing for the economy, it means the currency could be under more pressure in the near-term.

Meanwhile, the Federal Open Market Committee is set to meet this Friday, when it will decide the target cash rate. Analysts are expecting the Fed to raise the rate by 50 basis points. If the Fed increases its benchmark funds rate target to 3.75% to 4%, the Aussie will lose ground against the US Dollar.

A further downturn in the property market could weigh on the ‘Greenback’, which might also feed into concerns about the United States economy. With global economic uncertainties continuing to dominate the news, risk aversion is very high. That is why investors have switched to safe-haven investments, such as the Australian dollar.

Commodity prices are another factor that is affecting the Australian dollar. Natural gas and oil are among the country’s most important exports. Increasing oil and gas prices should provide a boost for the economy. Moreover, rising commodity prices may also entice exporters to increase their output capacity. Hence, the AUD/USD exchange rate should recover in the future.

Finally, the Reserve Bank of Australia will also be keeping an eye on inflation. In September, the US consumer price index increased to a 7.5% annual rate, the highest in over 30 years. According to the RBA, “Too high inflation will reduce the competitiveness of the Australian economy and pose risks to financial stability.”

Overall, the AUD/USD exchange rate has fallen 6.40% this year, which is the third lowest performance in nearly a decade. It is predicted to climb to 0.66 in Q4 of 2022 and to 0.69 by the end of 2024.