Australia's interest rate hike expectations ferment! AUD/USD hits a 14-month high, can it continue to strengthen in 2026?

With signals of the Reserve Bank of Australia (RBA) raising interest rates and the dual boost of a global commodities bull market, the Australian dollar has performed remarkably recently. As of December 30, the AUD/USD exchange rate stood at 0.6706, having previously touched 0.6727, hitting a new high since October 2024. Since the beginning of 2025, the AUD has appreciated by a total of 8.4%, with a significant rally.

Why Is the AUD Strengthening? Policy Divergence as the Main Cause

The core driver behind this AUD appreciation is the divergence in monetary policy expectations between Australia and the United States. On the Australian side, rebounding inflation data combined with hawkish signals from the RBA’s December meeting minutes have led the market to widely believe that the RBA will start a rate hike cycle in 2026. In contrast, the Federal Reserve’s rate cut process is still underway, with market expectations of an additional two rate cuts in 2026.

This opposite movement in policy expectations provides strong support for the AUD. Additionally, the hot commodities market cannot be ignored. Prices of major commodities such as gold, silver, and copper have repeatedly hit record highs. As a resource-exporting country, Australia benefits from this, with rising commodity prices directly boosting its economic outlook and further strengthening the AUD.

What Do Institutions Say About the AUD’s Outlook in 2026?

Several international banks remain optimistic about the AUD’s future. Deutsche Bank pointed out that the interest rate differential between the AUD and other G10 currencies will further widen, expecting the AUD/USD to reach 0.69 in Q2 2026 and surge to 0.71 by the end of the year. The National Australia Bank (NAB) has a more aggressive forecast, believing that if the RBA raises rates twice as expected in 2026, the AUD/USD could rise to 0.71 in Q2 and further climb to 0.72 in Q3.

Two Major Events Investors Should Watch

In the short term, two key dates will decisively influence the AUD’s trajectory. On January 28, Australia will release Q4 CPI data, which will serve as a window to assess whether inflation remains high; on February 3, the RBA will announce its interest rate decision, directly impacting market expectations for rate hikes.

These two data releases will determine investors’ perceptions of the RBA’s rate hike prospects and thus influence whether the AUD can maintain its strength. Paying close attention to these events will enable more precise timing of the AUD’s future movements.