Can the Australian dollar break through in 2026? See how the US dollar against the Australian dollar breaks through in three hurdles

2025 is Australia’s breakout year. Benefiting from a weakening US dollar, resilient domestic economy, and the ripple effects of trade tensions, AUD/USD gained 7% throughout the year. But as we enter 2026, can this upward momentum continue? Market opinions vary, but a consensus is forming: the fate of the Australian dollar is in the hands of three forces.

First hurdle: Can the divergence in central bank policies persist?

This is the most direct support for the AUD in 2026.

The Reserve Bank of Australia (RBA) is turning hawkish. As domestic inflation pressures rise, the rate-cutting cycle has ended. Institutions’ forecasts for 2026 differ significantly—Westpac leans conservative, expecting the RBA to hold steady; Commonwealth Bank predicts one rate hike; while National Australia Bank and Citibank are more aggressive, expecting hikes in February and May.

Meanwhile, the Federal Reserve is doing the opposite. Although JPMorgan expects the Fed to cut rates only once in 2026, the mainstream market view anticipates two cuts. This policy divergence puts pressure on the US dollar against the Australian dollar—Australian interest rates relative to the US are strengthening, attracting capital inflows.

Institutional views: JPMorgan forecasts AUD/USD to reach 0.67 in Q1 and surpass 0.68 by year-end; Deutsche Bank is more optimistic, targeting 0.69 in Q2 and surging to 0.71 by year-end; NAB even predicts it could rise to 0.72 by Q3. The common basis for these forecasts is the interest rate differential advantage of the AUD over the USD.

Second hurdle: Will economic resilience falter?

Can the Australian economy hold up? 2025 performed well—GDP growth exceeded expectations, and unemployment remained stable. OECD expects this momentum to continue in 2026, with GDP growth reaching 2.3%.

But there is a critical soft spot: Australia’s economy is highly dependent on commodity exports, with China as its largest trading partner. If China’s economic growth slows more than expected in 2026, Australia’s growth outlook could be undermined, putting downward pressure on the AUD. This is not a low-probability event—it’s the second major test facing the AUD.

Third hurdle: Geopolitical black swan

The identity of the AUD determines its destiny: a typical risk currency. When global risk appetite rises, the AUD benefits; when risk aversion spreads, the AUD is sold off.

In 2026, geopolitical undercurrents are brewing. If the Trump administration reinitiates trade wars, conflicts in the Middle East escalate, or US-China relations tense again—any of these could dampen risk appetite and drag down the USD/AUD exchange rate. For Australia, these are not abstract geopolitical headlines but tangible threats that directly impact economic growth and currency movements.

Final judgment

Market sentiment toward the AUD in 2026 is optimistic, but this optimism is conditional—based on supportive central bank policies, stable economic growth, and no collapse in global risk appetite. If any of these links break, the AUD’s rally could be halted.

For traders in USD/AUD, the upside is in the 0.70-0.72 range, but downside risks are equally important to watch. Monitoring Chinese economic data, Trump’s trade policy developments, and US-China relations will be the true indicators shaping 2026.