The AUD/USD rose on Monday, reaching about 0.6660 after a recent drop, as the US Dollar weakened. As we approach holiday closures, global markets will be affected, with major exchanges shutting down by late Wednesday. The Reserve Bank of Australia’s (RBA) meeting minutes will be released early Tuesday, potentially impacting traders of the Australian Dollar. Despite a recent dip, the Australian Dollar hit a 14-month high last week. The RBA is expected to raise interest rates at least twice in 2026, which supports the AUD. Meanwhile, the US Federal Reserve may cut rates in the next year or two. On Tuesday, US GDP growth figures are expected to show a decrease to 3.2% for Q3, down from 3.8%.

Key Factors Affecting The Australian Dollar

Several key factors influence the Australian Dollar, including RBA interest rates, iron ore prices, and the health of the Chinese economy. The RBA aims for a 2-3% inflation rate through interest rate changes. China’s economy, which is Australia’s main trading partner, affects the AUD’s value by increasing imports from Australia. Iron ore, Australia’s top export worth $118 billion annually, also impacts the AUD’s strength, with higher prices boosting the currency. A surplus in the Trade Balance strengthens the AUD, too. The bounce back in AUD/USD presents a great opportunity, as there’s a noticeable policy split between the US Federal Reserve and the Reserve Bank of Australia. We view this difference as the main reason for a continued rally in the Aussie dollar as we head into 2026. This setup suggests any short-term dips present good buying opportunities. The RBA is expected to provide a solid foundation for the currency, with at least two rate hikes anticipated in 2026. We recall the persistent inflation in 2024 when the annual CPI rate stayed above 3.5%. The RBA is signaling it won’t ease its policy too soon this time. This week’s meeting minutes should confirm this strong outlook.

US Federal Reserve And Economic Outlook

Conversely, the US Federal Reserve is preparing for a faster pace of rate cuts. This change is due to the cooling inflation we saw throughout 2024 and 2025, allowing the Fed to focus on supporting a slowing economy. The US Q3 GDP figures expected this week will likely confirm this economic slowdown, reinforcing the Fed’s cautious stance. Australia’s key export, iron ore, remains strong above $130 a tonne. This price stability benefits from ongoing stimulus efforts in China, which are finally boosting demand for industrial commodities. A robust Chinese economy, which grew around 5% in 2024, is crucial for maintaining Australia’s positive trade balance and supporting the Aussie’s strength. Given these factors, we should consider positioning ourselves for more AUD/USD strength by buying call options that expire in early 2026. Trading volumes will be low during the holiday week, providing a chance to build positions gradually. The goal is to be prepared for the pair to rise as markets resume full activity in the new year. Create your live VT Markets account and start trading now.

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