The AUD/USD has been the leading currency pair in the G10 this year, mainly due to speculation that the Reserve Bank of Australia (RBA) might be the first central bank to raise interest rates. However, Deputy Governor Hauser recently indicated a more cautious approach. Although we might see a temporary dip to 0.66 as rate expectations are adjusted, Australia’s strong economy and fiscal situation point toward a rise to 0.69 over the next 12 months. Since late November, the AUD/USD has shown an upward trend, making the Australian dollar the best-performing currency in the G10 this year, despite some poor performance today. This strength is largely driven by predictions that the RBA might become the first significant central bank to raise rates due to ongoing inflation issues in Australia. However, Hauser’s statements have cast doubt on this speculation, indicating a more careful approach.

Strong Fiscal Position of Australia

Australia’s strong fiscal situation and positive growth outlook are expected to support the AUD in diversification trades next year. Although a short-term dip to 0.66 is possible due to revised expectations for rate hikes, forecasts suggest a rise to 0.69 within a year. Last year, the Australian dollar was the top G10 currency, driven by expectations that the Reserve Bank of Australia would be the first major bank to raise interest rates. However, officials hinted at a more gradual approach, which turned out to be correct. The RBA’s cautious stance proved wise, as they maintained the cash rate at 4.35% throughout 2025, contrary to early market predictions of at least one rate hike. Persistent inflation, which ended the third quarter at 3.6%, supported the central bank’s decision to hold rates steady instead of cutting them like some other banks considered.

Future Outlook for AUD/USD

The price forecast from last year was also spot on, with the AUD/USD dipping to around 0.66 mid-year as markets adjusted their rate hike predictions for the RBA. The currency bounced back in the latter part of the year, nearing the 0.6850 mark, very close to the 0.69 target. As we enter January 2026, the main focus will be on the policy differences between the RBA and the US Federal Reserve. With Australian inflation still above target, the market isn’t anticipating any RBA rate cuts until at least the second half of this year, while the Fed is seen as having more flexibility to ease policy sooner. For traders, this scenario suggests a potential strengthening of the AUD/USD, while still managing risk. Buying call options with strike prices around 0.6900 and 0.6950 in the upcoming months could be a cost-effective way to benefit from a possible rally. This strategy allows traders to participate in any upside if strong Australian economic data leads the RBA to maintain its firm approach. Create your live VT Markets account and start trading now.

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