The Australian dollar is on a strong upward trend! Can it rise another 15% by 2026? The key depends on these two major events

Recently, the AUD has been quite volatile. As of the end of December, the AUD/USD exchange rate was around 0.67, the highest level since October last year. Even more impressively, in less than a month into 2025, the AUD/USD has already increased by over 8%.

What is driving this rapid rise in the AUD? Simply put, two forces are competing.

On one side is the hawkish stance of the Reserve Bank of Australia. Due to disappointing inflation data, the December meeting minutes hinted at a rate hike, and the market generally expects the RBA to start a rate hike cycle in 2026. On the other side, the Federal Reserve is taking the opposite path—the Fed's rate cut cycle will continue, with two more rate cuts expected in 2026.

The divergence in central bank policies has created an interest rate advantage for the AUD. When Australian interest rates rise relative to US rates, capital naturally flows into Australian assets, causing the AUD to appreciate.

In addition to interest rate differentials, commodity prices are also supporting the AUD. Gold, silver, and copper prices have recently hit record highs, and as a resource-exporting country, rising commodity prices directly benefit the domestic economy, further boosting the AUD's attractiveness.

Will the AUD continue to rise in 2026? Most institutional opinions are bullish. Deutsche Bank estimates that the AUD/USD will surge to 0.69 in Q2 2026 and reach 0.71 by the end of the year. The National Australia Bank is even more optimistic, predicting the AUD/USD will rise to 0.71 in Q2 2026, and possibly hit 0.72 in Q3.

However, these forecasts depend on one key premise—the RBA's determination to raise rates must be firm. The two key upcoming events to watch are: the release of Australia's Q4 CPI data on January 28, and the RBA's rate decision on February 3. These data points will directly influence market confidence in the Fed's rate hikes and determine whether the AUD's strength can persist into 2026.