Will the AUD reach 0.72 by 2026? The key depends on the central bank and US-China policies.

Can the Australian dollar still rise in 2026? Several international institutions have issued optimistic forecasts, with the AUD/USD expected to break through 0.70, and some predictions even see levels of 0.71-0.72. But all of this hinges on central bank policies and geopolitical situations not triggering black swan events.

The Three Pillars of the AUD’s Bullish Momentum

The Australian dollar’s performance in 2025 has already been eye-catching, with a cumulative increase of 7% against the US dollar. As we enter 2026, there are three main factors driving the AUD’s trend.

Divergence in Central Bank Policies Is the Main Support

The policy directions of the Reserve Bank of Australia (RBA) and the Federal Reserve in 2026 will directly influence the relative strength of the AUD against the USD.

On the RBA side, with inflation risks rising, the rate-cut cycle has ended. Market expectations for rate hikes are clearly divided—Westpac Bank believes the RBA will hold steady; Commonwealth Bank of Australia (CBA) expects one rate hike; and National Australia Bank (NAB) and Citibank are more hawkish, predicting two hikes (in February and May).

Regarding the Federal Reserve, consensus suggests there is room for two more rate cuts in 2026, but JPMorgan remains cautious, expecting only one cut. The divergence between the two major central banks—RBA leaning hawkish or holding steady, and the Fed continuing easing—provides support for the AUD.

Economic Fundamentals Provide Confidence

Australia’s economy remains resilient. In 2025, GDP growth exceeded expectations, and the unemployment rate stayed stable. The Organisation for Economic Co-operation and Development (OECD) forecasts that driven by the recovery in household disposable income, Australia’s GDP growth in 2026 will reach 2.3%, higher than in 2025.

However, there is a hidden concern—Australia’s economy is heavily dependent on commodity exports, with China as its largest trading partner. If China’s economic growth slows more than expected in 2026, Australia’s economic outlook could be pressured, and the AUD exchange rate may also come under downward pressure.

Risk Sentiment as a Variable

The AUD is a typical “risk barometer.” When global risk appetite rises, the AUD tends to appreciate; during risk aversion, it is often sold off first. If in 2026 the US initiates a new round of trade wars or if Middle Eastern geopolitical conflicts escalate, risk appetite could quickly decline, putting downward pressure on the AUD/USD exchange rate.

Institutions Generally Bullish, but with Different Expectations

Looking ahead to 2026, Wall Street is uniformly optimistic about the AUD, but target levels vary.

JPMorgan is relatively conservative, expecting the AUD/USD to reach 0.67 in Q1 and close the year at 0.68. The bank believes that steady Australian economic growth and stable RBA interest rates will support this outlook.

Deutsche Bank has a more bullish view, predicting that the interest rate advantage of G10 currencies will further widen, with the AUD reaching 0.69 in Q2 and 0.71 by year-end.

National Australia Bank is the most optimistic, expecting the AUD to rise to 0.71 in Q2 and further to 0.72 in Q3.

Overall, the most probable scenario is that the AUD will maintain an upward trend in 2026, but key factors include the pace of Fed rate cuts, China’s economic resilience, and whether unexpected geopolitical shocks occur.