The 2026 Australian Dollar Outlook: Central Bank Policies Diverge as "Dark Horse" Drivers, Caution Needed on Geopolitical Minefields

In 2025, the AUD/USD appreciated by a total of 7%, supported by multiple drivers. Looking ahead to 2026, whether the Australian dollar can maintain its strength depends on three "black swan" factors: central bank policies, domestic economy, and geopolitical risks.

**Divergence in Central Bank Policies: Australian Reserve Bank's Split Stance, Yield Advantage to Be Unleashed**

The Reserve Bank of Australia has ended its rate-cut cycle, but whether it will raise rates again or stay on hold remains a matter of debate. Westpac expects no rate hikes, Commonwealth Bank forecasts one hike, and National Australia Bank and Citibank anticipate two hikes (in February and May).

What about the U.S.? The Federal Reserve likely has room for two more rate cuts in 2026, but JPMorgan believes only one cut will occur. This divergence in policy—one hike, one cut—serves as a natural upward catalyst for the AUD/USD exchange rate, as widening interest rate differentials attract hot money flows.

Deutsche Bank notes that the interest rate advantage of the AUD among G10 currencies will continue to expand, indirectly supporting the long-term trend of the AUD against the RMB.

**Economic Resilience vs. China Variable: Stable Domestic Growth, High Trade Partner Risks**

Australia’s domestic economy performs well, with 2025 GDP growth exceeding expectations, and unemployment remaining stable. The OECD forecasts 2026 GDP growth at 2.3%, higher than 2025. Household disposable income recovers, consumption momentum picks up, all of which support the AUD.

However, there is a critical risk: China is Australia’s largest trading partner. If China’s economic growth slows more than expected in 2026, Australia’s commodity exports will be severely impacted, and the AUD exchange rate could be dragged down.

**Geopolitical Risks as "Time Bomb": Risk Appetite Shifts, AUD Will Drop**

The AUD is a typical "risk currency." When global risk appetite is high, it rises rapidly; when risk aversion increases, it is often sold off first. If Trump reignites trade tensions or Middle East tensions worsen in 2026, the AUD/USD could face significant pressure.

**Major Institutions’ Forecasts: AUD Appreciation Seen as Consensus, but with Different Upside Potential**

JPMorgan expects the AUD/USD to reach 0.67 in Q1 2026 and rise to 0.68 by year-end. Deutsche Bank is more optimistic, forecasting 0.69 in Q2 and 0.71 at year-end. NAB is the most aggressive, expecting 0.71 in Q2 and even 0.72 in Q3.

Most institutions are bullish on the AUD against the USD, mainly based on supportive monetary policy from the RBA and strong economic momentum. However, these forecasts assume geopolitical stability and no significant slowdown in China’s economy. If these variables shift, the upside potential for the AUD could be quickly limited.

In short, the AUD/USD may indeed trend higher in 2026, but investors should stay alert—geopolitical risks and China’s economic uncertainties could change the game at any time.