How will the Australian dollar rise in 2026? Analyzing the three major variables behind the central bank's hawkish signals

In 2025, the AUD/USD( performance was outstanding, with a full-year increase of 7%. The driving forces behind this are the triangular interaction of tariff expectations, a weakening US dollar, and Australia’s economic resilience. As we enter 2026, can this “risk currency of the Southern Hemisphere” continue to surge? The key depends on how the central bank’s stance, economic fundamentals, and black swan risks interact.

Is the RBA Really Going “Hawkish”? A Contrast with the Federal Reserve

Against the backdrop of rising inflation, the Reserve Bank of Australia (RBA) has paused its rate cuts. The biggest market debate is whether it will reverse course and hike rates in 2026.

Different institutions have varying forecasts: Westpac advocates that the RBA will “hold steady”; Commonwealth Bank expects one rate hike; National Australia Bank and Citibank are more aggressive, predicting two rate hikes) in February and May(.

In contrast, the Fed’s policy outlook is more dovish—the market generally bets on two more rate cuts in 2026, with only JPMorgan being more conservative, expecting just one cut.

This is the key point: The potential rate hike expectations of the RBA versus the continued rate cut expectations of the Fed, with widening interest rate differentials favoring AUD appreciation against the USD. Further, considering the AUD/CNY exchange rate, the relatively accommodative policies of the People’s Bank of China also indirectly support the attractiveness of the AUD.

Economic Resilience vs. China’s Drag: The Duality of Australia

Australia’s economic performance in 2025 has been quite solid, with GDP growth exceeding expectations and unemployment remaining stable. The OECD)OECD( even projects that the 2026 GDP growth rate will rise to 2.3%, benefiting from the recovery in household disposable income.

But there are clear concerns—Australia’s economy is highly dependent on commodity exports, with China as its largest trading partner accounting for over 20%. If China’s economic growth slows significantly beyond expectations, Australia’s export chain will be dragged down, further depressing the AUD. This is the fate of trade-sensitive countries.

Risk Appetite Shifts: Trump Trade War and Middle East Tensions as Black Swans

The AUD is widely recognized as a “risk currency.” When global risk appetite rises, it surges; when markets shift to risk aversion, it becomes a target for sell-offs.

In 2026, two “black swans” warrant vigilance: one is the potential escalation of the US-China trade war under President Trump; the other is the further deterioration of geopolitical tensions in the Middle East. Any trigger could instantly depress risk assets, with the AUD bearing the brunt.

Institutions Generally Bullish, but Forecasts Diverge

JPMorgan’s outlook is relatively conservative—targeting 0.67 for AUD/USD in Q1 and 0.68 by year-end; Deutsche Bank looks further ahead, expecting it to reach 0.69 in Q2 and 0.71 by year-end; NAB is the most aggressive, predicting a breakthrough above 0.71 in Q2 and even reaching 0.72 in Q3.

What is the consensus? Support from the RBA’s policy, strong economic fundamentals, and interest rate differentials—these three factors underpin the AUD. But risks are clear: an unexpectedly sharp slowdown in China’s economy or a global risk-off environment could render these forecasts moot.