AUD Rate Hike Expectations Diverge from USD: Can It Break Through 0.70 in 2026?

In 2025, the AUD/USD has risen by a total of 7%, driven not only by the overall weakening of the US dollar but also reflecting market expectations of a policy shift by the Reserve Bank of Australia. As we enter 2026, whether the expectation of interest rate hikes in Australia can become the main driver of an exchange rate rally depends on how the central bank plays its cards.

**RBA Rate Hike Expectations Drive Exchange Rate Trends**

In 2025, Australia's inflationary pressures continued to rise, and the market widely believes that the RBA's rate cut cycle has ended. The real point of divergence lies in whether the RBA will raise rates in 2026.

According to forecasts from multiple institutions, there are clear differences in the RBA's stance in 2026. Westpac Bank tends to be conservative, expecting the central bank to hold steady; Commonwealth Bank expects one rate hike; while NAB and Citibank are more hawkish, predicting two rate hikes in February and May respectively.

Such expectations of rate hikes provide strong support for the AUD. When the RBA maintains or raises interest rates, it attracts foreign capital seeking higher yields, increasing demand for the AUD. Meanwhile, the Federal Reserve is also expected to have room for two rate cuts in 2026 (JPMorgan is more hawkish, expecting only one), and the divergence in central bank policies will further push the AUD/USD higher.

**Economic Resilience Supported, but China Risks Remain**

Australia's economy demonstrated resilience in 2025, with steady GDP growth and stable unemployment rates. The OECD forecasts that Australia's GDP will grow by 2.3% in 2026, further improving from 2025, mainly driven by the recovery in household disposable income.

However, this optimistic economic outlook carries a concern: Australia's economy is highly dependent on commodity exports, with China being its largest trading partner. If China's economic growth slows more than expected, both Australia's exports and economic growth could face downward pressure, which would suppress the AUD.

**Geopolitical Black Swans Cannot Be Ignored**

As a typical "risk currency," the AUD's performance is highly correlated with global risk appetite. When market risk sentiment is high, the AUD benefits; when risk aversion rises, the AUD is prone to sell-off.

Key black swan events to watch in 2026 include: a potential trade war initiated again by US President Trump, escalation of geopolitical tensions in the Middle East, or other sudden global risk events. Any escalation of such risks would dampen investor risk appetite and put pressure on the AUD/USD.

**Institutions Generally Optimistic, Targeting 0.70+**

Despite risks, mainstream institutions remain optimistic about the AUD outlook in 2026.

JPMorgan expects the AUD/USD to reach 0.67 in Q1 and rise to 0.68 by year-end; Deutsche Bank is more optimistic, believing the AUD's interest rate advantage will further widen, reaching 0.69 in Q2 and 0.71 by year-end; NAB forecasts an increase to 0.71 in Q2 and further to 0.72 in Q3.

**Investment Points**

The divergence in AUD rate hike expectations and central bank policies in 2026 is the core driver of the upside. Most institutions are optimistic about the AUD breaking through 0.70 against the USD. However, traders should remain cautious of two major risks: China's economic slowdown and geopolitical escalation. If these black swan events intensify, the AUD could face a rapid correction.