In 2025, the AUD/USD (Australian Dollar/US Dollar) performed strongly, with a cumulative increase of 7%. Driven by tariff adjustments, a weakening US dollar, and the resilience of the Australian domestic economy, the Australian dollar demonstrated significant resistance. As we enter 2026, can this upward trend continue? The key will still depend on how the three variables—central bank policies, domestic economy, and geopolitical factors—play out.
The hawkish stance of the Reserve Bank of Australia vs. the continued easing by the Federal Reserve
The outlook for the Australian dollar primarily depends on the policy directions of the two central banks. The market has already confirmed that the Reserve Bank of Australia has ended its rate-cut cycle, but there are differing expectations for rate hikes in 2026.
Institutional forecasts vary. Westpac Bank believes the Reserve Bank of Australia will remain on hold, while the Commonwealth Bank of Australia predicts one rate hike. Conversely, the National Australia Bank and Citibank are more hawkish, expecting two rate hikes (in February and May). This policy divergence essentially reflects the rising inflation pressures—Australia needs