Strong Australian dollar appreciation expectations in 2026, but US-China policy black swan remains unpredictable

RBA Turns Hawkish, Providing Strong Support for the Australian Dollar

As 2026 begins, the subtle shift in the Reserve Bank of Australia’s (RBA) policy stance has become a focal point for the market. With domestic inflation pressures rising, the RBA has ended its prolonged rate-cutting cycle. While major institutions differ on the pace of future rate hikes, the overall tone remains hawkish—Westpac Bank expects the RBA to stay on hold, Commonwealth Bank forecasts one rate hike, and National Australia Bank and Citibank anticipate two hikes (in February and May, respectively).

In contrast, the Federal Reserve still has room to cut rates in 2026. The market consensus suggests two rate cuts, but JPMorgan’s outlook is more cautious, expecting only one. This divergence in policy—RBA leaning hawkish and Fed leaning dovish—directly boosts the AUD/USD exchange rate outlook.

Economic Fundamentals Are Positive, but China Factors Remain a Concern

Australia’s economy outperformed expectations in 2025, with resilient GDP growth and a strong employment market. The OECD forecasts a 2.3% GDP growth for Australia in 2026, an improvement over 2025. This is attributed to the recovery in household disposable income and a rebound in consumption.

However, the fragility of the Australian economy cannot be ignored. As a major commodity exporter, China’s role as Australia’s largest trading partner is crucial. If China’s economic growth slows more than expected in 2026, Australian export demand will be significantly pressured, directly impacting GDP and the AUD exchange rate. Additionally, this will influence the AUD/CNY rate, as the Chinese yuan’s movement is highly correlated with China’s economic growth.

Institutions Are Generally Bullish, but Geopolitical Risks Are a Variable

Based on the above analysis, major investment banks are generally optimistic about the AUD/USD outlook. JPMorgan expects the AUD/USD to reach 0.67 in Q1 2026 and rise to 0.68 by year-end. Deutsche Bank is even more bullish, believing that the widening interest rate differential will push the AUD/USD to 0.69 in Q2 and 0.71 by year-end. National Australia Bank’s forecast is the most aggressive, projecting a rise to 0.71 in Q2 and further to 0.72 in Q3.

However, markets must remain vigilant for “black swan” events. As a typical risk asset currency, the AUD is highly sensitive to global risk sentiment. If Trump’s administration restarts trade wars, conflicts in the Middle East escalate, or other geopolitical tensions worsen, risk appetite will quickly decline, and the AUD will face selling pressure, invalidating the above appreciation expectations. These uncertainties will also indirectly affect the long-term AUD/CNY exchange rate.

In 2026, AUD investment opportunities and risks coexist. The key will be whether the policy divergence among central banks can continue to dominate the market and whether global risk appetite can remain stable.