The outlook for AUD interest rates is optimistic! Expectations of rate hikes in 2026 continue to push the exchange rate higher to 0.71?

The strong performance of the AUD/USD remains hot. Entering 2025, the Australian dollar has appreciated by 8.4%, and last week it even surged to a 14-month high of 0.6727. What factors are supporting the Australian dollar's rally?

**Divergence in Central Bank Policies as the Main Driving Force**

The core动力 comes from the starkly different policy directions of the Reserve Bank of Australia and the Federal Reserve. Persistent inflation pressures in Australia, along with hawkish signals from December meeting minutes, have led the market to widely expect the RBA to initiate a rate hike cycle in 2026. The rise in Australian interest rates has become a market consensus.

In contrast, the Fed's rate-cut cycle is still ongoing, with two more cuts expected in 2026. This widening interest rate differential naturally attracts capital flows into Australian assets, further boosting the AUD/USD exchange rate.

**Commodity Super Cycle Worsens**

Adding to the momentum, precious metals like gold, silver, and copper, as well as industrial metals, continue to break historical highs. As a major global resource exporter, Australia benefits directly from the commodity bull market. Improved economic prospects further attract international capital, reinforcing investor confidence in the appreciation of the Australian dollar.

**What is the Outlook for AUD Interest Rate Policy in 2026?**

Many institutions are optimistic about the AUD's future. Deutsche Bank believes that Australia's interest rate advantage among G10 currencies will continue to expand, predicting AUD/USD will reach 0.69 in Q2 2026 and surge to 0.71 by the end of the year.

The National Australia Bank is even more bullish, estimating that the RBA will raise rates twice in 2026. Driven by rising interest rates, the AUD/USD could rise to 0.71 in Q2 and further climb to 0.72 in Q3.

**Key Upcoming Dates Not to Be Missed**

In the short term, two important data releases will dominate the AUD market. The Q4 CPI data on January 28 and the RBA interest rate decision on February 3 will be critical points for the market to reassess the probability of rate hikes. Whether these data can continue to validate the rate hike expectations will directly determine if the bullish trend of the Australian dollar can persist.