AUD/USD rises for four consecutive days, taking the top spot in the G10, with central bank rate hike expectations supporting the 2026 0.7 level

The Australian dollar has experienced a strong rally this week. On January 7th, it reported 0.6752, the highest level since October 2024, with a cumulative increase of 4% over the past two months, leading among the ten-nation group currencies. In comparison, Asian emerging market currencies such as the Philippine peso have performed relatively modestly, making the current surge in the Australian dollar particularly prominent.

Commodity Price Rise Drives Gains, Resource-Rich Countries Benefit

The direct driver of this Australian dollar appreciation is the overall rise in commodity prices. London copper prices have broken through the historical ceiling of $13,000 per ton, silver has surpassed $80 per ounce, and gold has firmly held above $4,500 per ounce. Industrial metals like iron ore and aluminum are also performing strongly, with gains of 4% so far this year.

As one of the world’s most important resource-exporting countries, Australia’s economy is naturally closely linked to commodity cycles. Analysts believe that factors such as supply shortages, expectations of rising import tariffs, and limited room for global central banks to cut interest rates will continue to support this commodity rally into 2026. If commodity prices remain firm, Australia’s export income will rise accordingly, further supporting the long-term appreciation of the Australian dollar.

RBA Rate Hike Expectations Are a Key Variable

The inflation data from November last year provided the Reserve Bank of Australia (RBA) with some room for adjustment. The CPI increased by 3.4% annually, slightly below expectations, but core inflation rose by 3.2% annually, still above the target range. Since inflation remains above the RBA’s 2% to 3% target, markets are beginning to bet that the RBA might raise interest rates once in 2026.

In contrast, the Federal Reserve is expected to cut rates twice in 2026. The divergence in policy directions between the two major central banks forms the basic logic for the AUD/USD exchange rate increase—when Australia maintains relatively high interest rates, the attractiveness of the US dollar diminishes, making the Australian dollar a more preferred choice for investors. Deutsche Bank notes that the interest rate differential advantage of the Australian dollar among major global currencies will further widen.

Marcel Thieliant, Head of Asia-Pacific Economics at Capital Economics, stated that if the Q4 CPI data released on January 28th exceeds expectations, the RBA could start tightening next month, which would further strengthen the Australian dollar.

Will 2026 Break the 0.7 Barrier?

Deutsche Bank has provided a clear price forecast: the AUD/USD could reach 0.69 in the second quarter of 2026 and further climb to 0.71 before the end of the year. This indicates that the Australian dollar still has room to rise from current levels, mainly depending on whether commodity prices continue their upward trend and whether the RBA indeed implements rate hikes in 2026.

However, it is worth noting that exchange rate fluctuations are influenced by multiple factors. Changes in global risk sentiment, the US dollar trend, geopolitical surprises, and other events could temporarily alter the upward trajectory of the Australian dollar. But based on the current commodity cycle and divergence in central bank policies, the Australian dollar has strong upward momentum.