The Australian dollar is tipped to keep climbing through 2026, offering a boost for overseas travellers and major ASX-listed companies. Analysts expect the currency to benefit from diverging interest rate paths between Australia and the United States, according to The Sydney Morning Herald.
The AUD currently trades at about 66 US cents, up from 61 cents in January. Forecasts suggest it could rise by anywhere from 10 to 40 per cent next year, largely due to shifting central bank policies. While the Reserve Bank of Australia cut rates three times earlier this year, rising inflation and stronger economic growth have reduced expectations of further easing.
Instead, markets are increasingly betting that RBA Governor Michele Bullock will lift rates by 0.25 per cent at the February meeting, a view now shared by CBA and NAB. Inflation remains elevated at 3.8 per cent annually, above the RBA’s target band. As Bullock recently noted, “It is very uncertain what [inflation] is temporary and what is persistent.”
By contrast, the US Federal Reserve has begun cutting rates and may do so again, a divergence that could favour the Aussie dollar. “Just like in share markets how earnings are one of the surest predictors of share price moves, in currency markets, interest rate differentials are a similar predictor,” says Michael McCarthy of Moomoo.
McCarthy expects the AUD to reach 72 US cents in 2026, while AMP’s Shane Oliver sees it hitting 73 cents. UBS is more bullish, flagging a possible surge to as high as 92 US cents, citing strong foreign demand for Australian government bonds and historical precedents.
A stronger dollar would benefit travellers and importers but could pressure exporters, particularly major miners. Commodity price falls or a global economic slowdown could also curb the currency’s rise.
Source: The Sydney Morning Herald
