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A sunny 2026 for the Australian dollar?
27/02/2026
The Australian dollar currently has a wide range of monetary, economic and political factors on its side
The Australian dollar (AUD) has entered 2026 with strong momentum. Since the beginning of the year, AUD has topped the performance rankings — not only against the U.S. dollar, but also vs. the euro. This strength is not driven by a single factor but by a combination of monetary-policy divergence, relatively attractive yields, commodity impulses and a gradual stabilization in China.
In our view, monetary policy is at the heart of this story. In early February, the Reserve Bank of Australia (RBA) delivered a 25‑basis‑point rate hike, lifting the cash rate to 3.85%. What mattered more than the move itself was the accompanying message: the RBA made clear that, following the rise in the second half of 2025 to an annual 3.8% in January, inflation is likely to remain above the target band of 2% to 3% for longer. While many other central banks are discussing further rate cuts or already preparing them, Australia continues to signal caution — positioning itself noticeably more restrictively than the U.S. Federal Reserve or the European Central Bank.
This monetary-policy divergence has had immediate implications for the foreign-exchange (FX) markets. Higher interest rates have once again made AUD comparatively attractive as a currency offering yield. The Australian dollar’s carry advantage has improved markedly. At the start of the year, markets even temporarily priced in additional RBA rate hikes, which helped attract international capital flows. At the same time, speculative investors reversed their positioning: net short positions at the end of 2025 turned into clear net long exposures by February — a classic signal of rising conviction in the prevailing trend.
The AUD is also receiving support from commodities, although the picture is mixed. Uranium stands out: prices rose sharply in January, at times pushing back into triple‑digit U.S. dollar territory for the first time since early 2024. Political backing for nuclear energy, tight supply conditions and rising long‑term demand have provided a strong impulse — and a tailwind for Australia, as a key producer. The picture is less clear for iron ore, prices recently came down due to softer Chinese steel demand.
The Chinese currency is another important factor. Since the start of the year, the renminbi has appreciated modestly. This has had a stabilizing effect on the broader Asian FX complex and has also benefited AUD, which investors often view as a liquid proxy for China exposure.
The global backdrop has also been favorable for the Australian currency. The U.S. dollar is being viewed increasingly skeptically, and not only since the start of the year. Many investors already had large short USD positions, making it easier for other currencies to appreciate when positive local catalysts emerged. Against this backdrop, the RBA’s hawkish stance fed into a market that was already inclined towards AUD strength.
That said, risks remain. Persistent weakness in iron ore, faster‑than‑expected easing in inflation, or a more active pushback by China against currency appreciation could all weigh on AUD. In addition, the Australian dollar is no longer under the radar — positioning has become significantly more bullish, increasing the risk of short‑term pullbacks.
“We can conclude that the strong start to the year for the Australian dollar appears well founded,” said Xueming Song, currency strategist at DWS. “Monetary-policy strength, relatively attractive yields, some positive commodity impulses and a more stable China backdrop are currently reinforcing each other.” As long as the RBA maintains its restrictive stance and external shocks remain limited, there are good reasons to expect the Australian dollar to remain among the relative winners in the G10 universe — even if the path forward is unlikely to be free of volatility. In addition, we consider Australia, with its balanced budget, low debt, current-account surplus, stable financial system and lack of any major demographic problems a potential safe haven in the current global political and economic environment.
The development of uranium prices is an important supporting factor for AUD/USD
Sources: Bloomberg Finance L.P., DWS Investment GmbH as of 2/24/26
This information is subject to change at any time, based upon economic, market and other considerations and should not be construed as a recommendation. Past performance is not indicative of future returns. Forecasts are based on assumptions, estimates, opinions and hypothetical models that may prove to be incorrect. Alternative investments may be speculative and involve significant risks including illiquidity, heightened potential for loss and lack of transparency. Alternatives are not suitable for all clients.