The Australian dollar strengthens past 0.67! It is expected to challenge 0.72 in 2026, with divergence in central bank policies being the key

The Australian dollar has recently experienced an astonishing rally. On December 29, AUD/USD briefly broke through 0.6727, reaching the highest point since October 2024. As of December 30, AUD/USD traded at around 0.6706. Looking from another perspective, since the beginning of 2025, the AUD has appreciated over 8.4% against the USD, making this performance stand out among various asset classes.

**Divergence in Monetary Policies, the Core Driver of AUD Appreciation**

The logic behind the AUD's appreciation is actually quite simple. The policy directions of the Reserve Bank of Australia and the Federal Reserve have shown a clear divergence.

On one hand, Australia's inflation has rebounded somewhat, but December's meeting minutes reveal a hawkish tilt. The market widely expects the RBA to start raising interest rates in 2026. On the other hand, the Fed's rate-cut cycle is not yet over, with market expectations of two more rate cuts in 2026. The policy divergence between the two major central banks directly drives the rise of AUD/USD.

The strong performance of commodities further fuels this trend. Gold, silver, and copper prices continue to hit record highs, and as a resource-exporting country, Australia naturally benefits from the commodity bull market. This further reinforces investors' expectations for AUD appreciation.

**Institutional Forecasts: There Is Still Much Room for AUD Appreciation**

Deutsche Bank believes that the relative interest rate differential of AUD within G10 currencies will further widen. The bank forecasts that AUD/USD could reach 0.69 by Q2 2026, and possibly hit 0.71 by the end of the year.

The National Australia Bank's outlook is even more optimistic. The bank estimates that the RBA will raise rates twice in 2026. Based on this, AUD/USD could surge to 0.71 in Q2 and even reach 0.72 in Q3.

**Short-term Key Points: Two Dates to Watch**

However, investors should remain cautious. Two key events should not be overlooked: Australia will release Q4 CPI data on January 28, and the RBA will announce its latest interest rate decision on February 3. The performance of these data points will directly influence market expectations of RBA rate hikes and determine whether the AUD's upward trend can continue. In other words, the next move of the AUD largely depends on the content of these two reports.