why the AU designation if it isn't almost uncirculated
Do you want the short answer, or the long answer?
Here's the long answer. Scroll down to the bottom of the post for the short answer.
Once upon a time, back in the late Middle Ages, coins were graded much the same everywhere, and on a very simple scale: Poor, Fair and Good. Since the only coins being collected back then were ancients, this scale was sufficient, and the words meant pretty much what they mean in everyday conversation: a coin in Good condition was actually pretty good, given that it had been dug up after being buried for a thousand years.
As coin collecting became more popular and modern coins began to be collected, additional grades beyond "Good" had to be invented, especially with the introduction of modern machinery capable of creating coins of very high quality (just like new words to describe the purity of olive oil had to be invented as oil refining and filtering technologies advanced). This we acquired Fine, Very Fine and, early in the 20th century, Extremely Fine. Then there was Uncirculated, to describe a coin in mint-fresh condition. "AU" or "aUnc" is a relatively modern invention.
Up until at least the mid-20th century, condition was not a particularly significant factor in assigning a value to a coin; rarity was much more important. The Sheldon scale was invented in 1949 as a simplified way to convert condition-to-value for a given coin: a VF-20 coin was worth one-third the price of an MS-60 coin, no matter what the coin actually was. This kept the Sheldon catalogue relatively uncluttered, since only one price was required to be listed for each type and variety: the theoretical "basal-state" (BS-1) price. Prices for higher grades could be calculated just by multiplying the BS price by the Sheldon number for the grade.
Time marched on, and the demand for coins in the "best possible grade" grew. Prices for Unc coins escalated far beyond the usefulness of the Sheldon scale to calculate value. Thus, we have the complicated system of grading, with multiple levels, adjectives, and words that seem to mean the opposite of their normal everyday sense - compared to a coin in aUnc condition, a coin in Good condition is actually rather awful.
From now we can more clearly see a curious effect: "grade creep", also known as "gradeflation" - which is the main reason why the Americans have a much slacker grading standard than ours. The definitions of what qualifies a coin as "Good" or "Very Fine" has changed over time, and have gotten worse. As I said, originally a coin in Good was in pretty good nick.
Gradeflation happens at different rates in different places; it is faster where there has a high market demand for high-grade coins for a longer period. If the supply isn't meeting the demand, the grading standards are slackened slightly, to allow for increasing numbers of coins to reach the threshold for each grade. It's an evolutionary (or, more precisely, a devolutionary) process; tiny changes made over a long time period. Gradeflation has been more rampant in America than it has here in Australia, because of the higher collector demand generally which has meant that high-grade coins have been in demand there for longer.
Don't think the Australian standard of grading has been immune to gradeflation, either. Today, the British grading standard is even tougher than ours; an American AU-55 ought to make an Australian EF, but would only rate a British gVF. But back when we were part of the British Empire, our grading standards were the same. And if you want to see how far our grading standards have slipped since the "good old days", grab a copy of an old grading guide from the 1960s. The book "Collecting Australian Coins" by Tom Hanley and Bill James came out in 1966, just after decimalization. Listen to these lines from the grading guide for the reverse of George V silver coinage, contained therein (emphasis mine):
Uncirculated: This would be a proof coin if the field showed more finish. The surface retains a mint-fresh lustre, detail of the heads of the kangaroo and emu are sharp, and the feathers on the emu's back show no trace of wear under the glass. Magnification discovers no blemishes such as scratches or nicks. Only the cream of coins obtained from the banks in the original mint rolls are in this condition.
Extremely Fine: This is the condition in which all but a few of the roll coins are found. These coins show the marks, usually superficial scratches of the chutes and conveyors along which they travelled during minting processes. A good deal of their mint lustre remains and the glass should show no more than the slightest trace of wear on the uppermost feathers on the emu's back.
Only a tiny fraction of coins from mint rolls
qualify as Uncirculated? Mint bag marks only visible under magnification
count as "wear"? Now that's a harsh standard, harsher even than the current British standard. Yet it's the standard many of our old-time collectors (and dealers) grew up with, and it's the standard the price guides from the 1960s would have used.
So, the short answer: America has had more gradeflation than us.
Don't say "infinitely" when you mean "very"; otherwise, you'll have no word left when you want to talk about something really infinite. - C. S. Lewis