The surge of AUD/USD: Can divergent central bank policies support the continued strength of the Australian dollar?

The AUD exchange rate has performed remarkably recently. On December 29, AUD/USD reached 0.6727, hitting a new 14-month high. As of December 30, the currency pair was quoted at 0.6706. Since the beginning of 2025, the Australian dollar has appreciated by a total of 8.4%, a considerable increase.

**Diverging central bank policies are the key driver**

The core logic behind this AUD appreciation lies in the divergence of monetary policies. The Reserve Bank of Australia (RBA) is facing inflation rebound pressures, and the December meeting minutes released hawkish signals, with the market generally expecting a rate hike cycle to begin in 2026. In contrast, the Federal Reserve (Fed) is still in a rate-cutting phase, with the market widely betting on two more rate cuts in 2026. This policy divergence directly enhances the attractiveness of the AUD relative to the USD.

In addition to interest rate expectations, strong performance in commodities has also contributed to the AUD's rise. Gold, silver, and copper have recently hit record highs, and as a resource-exporting country, rising commodity prices undoubtedly benefit Australia's economic outlook, further boosting investor confidence in the AUD.

**The AUD exchange rate outlook for 2026 is optimistic**

Multiple institutions have issued positive forecasts for the AUD. Deutsche Bank believes that the interest rate advantage of G10 currencies will further widen, expecting 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) is even more optimistic, expecting the RBA to raise rates twice in 2026. Under this scenario, AUD/USD could rise to 0.71 in Q2 2026 and further to 0.72 in Q3.

**Investors should closely monitor two key dates**

The future trend of the AUD remains uncertain. Market participants should focus on two critical events: the release of Australia’s Q4 CPI data on January 28 and the RBA’s latest interest rate decision on February 3. These data points will directly influence market expectations of the RBA’s rate hike path and determine whether the bullish trend of the AUD can continue.