The Behind-the-Scenes of the AUD Surge: How Diverging Central Bank Policies and Commodity Booms Are Driving the Australian Dollar to Break 0.71 in 2026

The Australian dollar performed remarkably at the start of 2025. AUD/USD surged to 0.6727 at the end of December, hitting a new high in over a year, then slightly retraced to 0.6706. Since the beginning of 2025, the AUD has appreciated by 8.4% against the US dollar, with a clear upward trend exceeding market expectations. What economic logic is hidden behind this wave of appreciation?

**Divergence in Monetary Policies: Major Shifts in Central Bank Expectations**

The core driver behind the AUD's strength stems from significant differences in policy directions between the Reserve Bank of Australia (RBA) and the Federal Reserve. Recently, inflation pressures in Australia have re-emerged, and the December meeting minutes revealed a hawkish stance, leading markets to generally expect the RBA to initiate a rate hike cycle in 2026.

In contrast, the Fed's rate hike cycle has largely concluded, with widespread expectations of continued rate cuts in 2026, totaling two cuts for the year. This relative divergence between rate hikes and cuts has created strong upward momentum for the AUD against the USD.

**Supercycle in Commodities Boosts Australia's Economic Outlook**

Besides monetary policy, the impressive performance of the commodities market has also reinforced the AUD rally. Strategic commodities like gold, silver, and copper have repeatedly hit record highs. As a major global resource exporter, Australia naturally benefits the most from this commodities bull market. The rise in commodities signals an improvement in Australia's economic fundamentals, boosting investor confidence in the country's economic prospects and increasing demand for the AUD.

**Institutional Forecasts: AUD Will Continue to Rise in 2026**

Deutsche Bank's analysis suggests that Australia's interest rate advantage within the G10 currency group will further widen. The bank forecasts AUD/USD to rise to 0.69 by Q2 2026, and reach 0.71 by the end of the year.

The National Australia Bank (NAB) is even more optimistic. It predicts the RBA will implement two rate hikes in 2026, and based on this, AUD/USD could rise to 0.71 in Q2 2026, with a further surge to 0.72 in Q3.

**Key Dates: Decisive Windows in January and February**

In the short term, market focus will be on two critical moments. On January 28, Australia will release Q4 CPI data, which will directly influence market judgments on the necessity of RBA rate hikes. Then, on February 3, the RBA will hold a monetary policy meeting, and this announcement will be a key catalyst for whether the AUD can maintain its strength.

Investors should closely monitor these two events, as they will determine whether the market's rate hike expectations are validated and whether the AUD's rally can be sustained.