The Australian dollar may have won a reprieve from Monday's sharp sell-off, but analysts say even this resilient currency will struggle to overcome global headwinds.
"I think the U.S. dollar generally is in a strengthening mode medium term, China's growth is clearly struggling and commodity prices will continue to remain heavy. So overall, the Australian dollar comes lower," Greg Gibbs, senior forex strategist, RBS told CNBC.
The Aussie dollar (Exchange:AUD1Y=) rose 0.6 percent on Tuesday after falling nearly 2 percent against the U.S. dollar on Monday. This weakness in the Aussie marks a notable turnaround as the currency hit a three-month high of $1.0583 just last week and has remained stubbornly strong since 2011.
But data showing growth in Australia's biggest export market, China, had slowed more than expected in the first quarter and the slump in commodity prices led by gold (CEC:Commodities Exchange Centre: @GC.1) has contributed to the currency's recent dip.
Commodity exports have been the main driver of the Australian economy with some of world's largest miners invested in the resource-rich country.
(Read More: In Few Weeks Gold Will Be at $1260: Chartist )
Sean Callow, senior currency strategist at Westpac Bank said the Aussie dollar is vulnerable right now owing to weakness in commodities.
"Our Westpac basket of commodity prices weighted by Australia's exports is really falling quite steeply- so that has to weigh on the Aussie," he said.
Copper, one of Australia's major resource exports, saw its price drop to its lowest level in one and half years, while the price of gold had its biggest-ever daily loss on Monday.
According to Callum Henderson, global head of forex research at Standard Chartered Bank, the Aussie will continue to be hit by the weakness in commodities in the "immediate term," while Gibbs of RBS forecasts the Aussie to slump to 98 cents against the dollar by the year-end.
However, both agree that this high yielding currency will continue to benefit from monetary easing by global central banks. According to Henderson once Japanese outflows start in earnest on moves to keep the yen (Exchange:JPYUSD=) from strengthening, the Aussie could be one of the currencies that will appreciate as a result.
(Read More: From Cautious to Bold, Can the BOJ Deliver? )
-By CNBC.com's Rajeshni Naidu-Ghelani; Follow her on Twitter @RajeshniNaidu
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