2026 AUD Outlook Diverges: Central Bank Hawkish Stimulates Exchange Rate, but US-China Situation Hides Risks

In 2025, the AUD/USD recorded a 7% increase, driven by multiple positive factors—changes in tariffs, pressure on the US dollar, and the resilience of the domestic economy—collectively boosting the Australian dollar’s performance. As we enter 2026, the direction of this risk currency will depend on the interaction of three major variables: divergence in central bank policies, domestic growth momentum, and fluctuations in geopolitical risks.

Divergence in Central Bank Policies Boosts AUD Rally

Australia’s inflation risk is rising, breaking market expectations of continued rate cuts. The Reserve Bank of Australia’s rate-cut cycle has ended, but there is disagreement among institutions about whether rates will be raised in 2026.

Westpac tends to be conservative, predicting that the RBA will keep rates unchanged in 2026. Conversely, the Commonwealth Bank of Australia, National Australia Bank, and Citigroup expect a possibility of rate hikes—CBA estimates one hike, while NAB and Citi anticipate two hikes (in February and May).

Regarding the Federal Reserve, the market generally expects two rate cuts in 2026, but JPMorgan is more cautious, forecasting only one cut. This policy divergence—where the RBA may hold or even raise rates while the Fed remains accommodative—will create a yield differential advantage, naturally favoring the AUD against the USD.

Economic Resilience Provides Solid Support

In 2025, the Australian economy demonstrated resilience, with GDP growth exceeding expectations and unemployment remaining stable. Looking ahead to 2026, the OECD forecasts Australia’s GDP will grow by 2.3%, an improvement over 2025, mainly driven by the recovery in household disposable income.

However, 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 export outlook could face pressure, which may weigh on the AUD exchange rate.

Fluctuations in Risk Appetite Pose Hidden Risks

As a typical risk asset currency, the AUD’s performance is highly correlated with global risk sentiment. When market risk appetite is high, the AUD benefits from gains; when safe-haven demand rises, the AUD is prone to sell-offs. If trade tensions escalate or conflicts in the Middle East intensify in 2026, risk aversion will dominate the market, and the AUD/USD could face downward pressure.

Institutional Forecasts Outline an Upward Trend

Despite risks, mainstream financial institutions remain optimistic about the AUD/USD outlook. JPMorgan forecasts it will reach 0.67 in Q1 and rise to 0.68 by year-end; Deutsche Bank is more aggressive, targeting 0.69 in Q2 and 0.71 by year-end; NAB is also optimistic, expecting 0.71 in Q2 and further rising to 0.72 in Q3.

These forecasts reflect market confidence in Australia’s economic growth and central bank policy combination, but investors should remain alert to potential black swan events between the US and China that could cause sharp volatility.