The Australian dollar is rising on rumors that the Reserve Bank will raise its key rate in 2026, high global risk appetite, and the strengthening of the Chinese yuan. Let’s discuss this topic and make a trading plan for the AUD/USD pair.
The article covers the following subjects:
Major Takeaways
- In December, the RBA discussed a rate hike.
- China is deliberately strengthening the yuan.
- Stock indices are supporting the Australian dollar.
- Long positions on the AUD/USD pair with a target of 0.682.
Weekly Fundamental Forecast for Australian Dollar
The Australian dollar may not have a lot of advantages, but it makes good use of the ones it has. In early December, purchases of the AUD/USD pair were driven by a rally in global stock indices, the success of the Chinese yuan, and divergence in monetary policy between the Fed and the RBA. These factors pushed the pair to its highest levels since October 2024.
The Australian dollar was the best-performing G10 currency in the fourth quarter. Markets are beginning to factor in the RBA’s shift to tighter monetary policy in AUD/USD quotes, while other central banks have taken a long pause or still plan to cut rates. The Bank of Japan can be removed from the list. The BoJ made two rate hikes in 2025, in January and December, raising the overnight rate from 0.25% to 0.75%. No hikes are expected in 2026.
Central Banks’ Interest Rates
Source: Bloomberg.
At its last meeting in 2025, the Reserve Bank of Australia signaled that it had ended its monetary expansion cycle. Michele Bullock discussed the conditions under which the key interest rate could be raised.
Commonwealth Bank of Australia predicts that the cash rate will rise from 3.6% to 3.85% next year amid an accelerating economy and stubborn inflation. The National Australia Bank expects two monetary policy tightening acts in February and May. At the same time, the cost of borrowing will rise to 4.1%. Even Westpac, which had previously expected a continuation of easing, is now predicting that the key rate will be kept unchanged.
The People’s Bank of China’s targeted policy of strengthening the yuan through higher daily fixing has two main objectives. A strong renminbi discourages domestic companies from buying US dollars. It prevents American investors from repatriating capital to their home country. The USD/CNH rate has been falling by approximately 1% every 60 days. If this pace continues, the pair will reach 6.8 by the end of 2026, and its decline gives the green light to AUD/USD bulls.
Performance of Major Stock Indices
Source: Wall Street Journal.
The same is true for stock indices. Since the beginning of January, the global MSCI index, excluding US stocks, has risen by 29%. This is 11.5 percentage points faster than the S&P 500 index. If the gap between thempersists until the end of December, it will be the largest difference in favor of the global index since 2009. High global risk appetite creates a tailwind for risky currencies, and the Australian dollar is no exception.
Weekly AUDUSD Trading Plan
The AUD/USD pair’s rally may continue towards the target of 0.0682. It will most likely have to be raised in 2026. Against this backdrop, the aussie can be purchased on pullbacks.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of AUDUSD in real time mode
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