(5 January 2026 – Australia) The strength of the Australian Dollar in 2026 will be heavily influenced by interest rates, commodity prices and mounting geopolitical tensions.
The growing interest rate differential between the Reserve Bank of Australia (RBA) and US Federal Reserve has underpinned recent Aussie Dollar (AUD) strength in late 2025 after the Fed reduced its policy rate for the third consecutive time. Economists are however divided between whether the RBA will keep rates on hold through 2026 or revert to a hawkish stance.
Despite recent strength, the AUD has been steadily depreciating in value against the US Dollar since its peak of 109 US cents in 2011 with the value of the local currency now arriving at a crossroads.
“The Aussie is gradually rising, driven by broad US dollar weakness as the Fed continues to gradually cut. And now that we have the RBA on hold with the risk of hiking. The yield advantage held by the US is likely to erode further” commented NAB FX Strategist, Rodrigo Catril.
“The Aussie dollar will also be supported by the strong domestic economy and expectation China will continue a gradual appreciation of the RMB. The local currency is often used as a liquid proxy for the RMB, given China is Australia’s largest trading partner” Catril added.
“If the RBA is forced to hike in February due to some unwelcome news on the consumer price index, then it will, and the labour market will be no barrier to that. If the labour market has to loosen a bit more to address inflation, it might be the cost to pay” stated IFM Investors Chief Economist, Alex Joiner.
“It’s easy to see further appreciation, as a hawkish RBA vs a more dovish US Federal Reserve and downward USD pressure could see the Australian dollar even get up to 70 US cents” said AMP Deputy Chief Economist Diana Mousina said.
“Fair value is more like 72 US cents, but it’s hard to see significant upside beyond 70 US as the euro and yen benefit more from lower USD and we need to see stronger global growth, and China to see a higher Australian dollar” Mousina added.
“If US interest rates fall significantly from here and Australian interest rates rise, the dollar, analysts say, will likely move convincingly above 70 US cents. And US President Donald Trump’s foray into Venezuela puts another spanner in the works of the currency market.
Brace for big moves in commodities prices and currencies in the coming days and months” said ABC Business Correspondent, David Taylor.