The Australian dollar started off 2023 on a high note, where it enjoyed a brief rise to .71 US cents in January after beginning the month at 0.68 USD.
Nevertheless, the good times were not to last, and after a steady decline throughout 2023, the Australian dollar was trading at .67 US cents by December 31, 2023. As of February 5, 2024, the dollar had slumped to .65 US cents.
The exchange rate, while demoralising for US-bound travellers, is consistent with previous global crises, such as the GFC (where the Australian dollar was at 0.60 against USD) and the Covid-19 pandemic.
This most recent dip, however, started at the same time many economists were forecasting a US recession. Now, as the RBA signals an end to the rate cutting cycle of 2022 and 2023, is it fair to expect the Aussie dollar to recover?
Let’s take a look at the state of play for the AUD-USD conversion in 2024.
Related: Why Is the Aussie Dollar Falling?
The Australian Dollar’s Performance Last Year
The Australian dollar had a dismal year in 2023 when paired with the USD, the world’s 10th strongest currency. In September 2023, it had hit a 10-month low of 63.58 US cents, after a gradual decline in the months prior.
Ongoing global crises affected the market significantly last year, making this decline no surprise. As the RBA explains, Australia has a floating exchange rate, “meaning the movements in the Australian dollar exchange rate are determined by the demand for, and supply of, Australian dollars in the foreign exchange market”.
Domestically, interest rates and inflation figures also affect how the Australian dollar performs on the foreign exchange market. And against the USD–which has even higher interest rates and inflation than Australia–the AUD has been falling at a steady rate (with some brief increases) for the better part of the past two years now.
Despite the ongoing decline, economists had reported forecasts that “the local currency to [would] hit .70 US cents by the middle of 2023 as the era of US dollar dominance crumbles”. Instead, on June 30, 2023, $1 AUD was worth $US0.66.
After more months of minor fluctuations, on December 31, 2023, the Australian dollar was worth 67 US cents. This was 1 cent lower than December 21, 2022.
US Dollar Performance & Drivers in 2023
Speaking to Forbes Advisor, ANZ’s head of FX research Mahjabeen Zaman explains why—despite the market stress occurring globally—the US dollar remained so strong during 2023.
Largely, it comes down to the US dollar traditionally providing a safe haven status in times of market stress–just as it did the previous year.
“Other safe haven currencies include the Japanese Yen and the Swiss Franc,” Zaman says.
“In the current cycle however, the US dollar offers a higher interest rate and a yield advantage as opposed to the Yen, which is in a negative interest rate environment, and Swiss Franc, which has much lower interest rates than the US currently.”
This means despite the recession fears during the past year, the US dollar is still considered to be in a competitive position and to be a safe investment while other “less healthy” currencies decline in value due to global market volatility.
Additionally, with a “hawkish RBA” and consistent signs of rising inflation, Australians were provided “little lasting support beyond a 24 to 48-hour window” of how the currency was faring, Zaman says.
AUD to USD: Six-Month Forecast
Zaman says the good news is that the AUD is expected to strengthen over the term of 2024, “largely due to a gradually easing USD and improving risk sentiment over the course of the year.”
By the middle of the year, ANZ expects the Australian dollar to be trading at 0.69 as of June 30, 2024.
Other Big Four banks are split: Westpac predicts a slightly lower conversion of 0.68 US cents on the same date, while NAB is forecasting a steady rise to 0.71 by mid-year.
At the time of writing, the current AUD/USD conversion rate is 0.65.
Australian Dollar to US Dollar Long-Term Forecast
Zaman says it’s expected the RBA won’t be as hawkish this year with its rate rises, which should lead to some stability—and even strength—for the country’s currency.
With that, Zaman says ANZ forecasts $1 AUD will be worth $US0.70 by year’s end.
Westpac is also forecasting an AUD/USD exchange rate of 0.70 by the end of the year, while NAB is again anticipating higher with a forecast of $1 AUD to be 0.73 to the US dollar by December 2024.
Looking further ahead to 2025, ANZ forecasts the AUD will be worth 0.72 US cents; Westpac predicts 0.71, and NAB continues to aim high with a prediction of 0.75 US cents to 1 Australian dollar.
Frequently Asked Questions (FAQs)
Why has AUD been dropping?
The Australian dollar has been dropping in value due to global economic factors. Without a strong global outlook, the demand for Australian dollars falls, which in turn affects its value negatively.
