UBS forecasts that the Australian dollar (AUD) will rise, aiming for a value of 0.70 against the U.S. dollar (USD) by early 2026. They believe the Reserve Bank of Australia (RBA) will cut interest rates by 75 basis points through the first quarter of 2026, while the U.S. Federal Reserve may lower rates by 100 basis points. Recently, the AUD/USD dropped from a nine-month high near 0.66 to below 0.6430, but has since bounced back to around 0.65. UBS sees this level as a chance for medium-term profits.

Support From RBA’s Approach

The Australian dollar is likely to gain support due to the RBA’s less aggressive rate cuts. This should help the AUD maintain a yield advantage over the USD. Australia’s strong bond market, known for its depth and liquidity, may draw investors looking to diversify their currency portfolios. UBS believes this makes the AUD/USD pair appealing. We think the Australian dollar is in a good position to rise against the U.S. dollar. After hitting a low of around 0.6430, the pair has climbed to about 0.65, a level we see as a strong buying opportunity. This could be a great chance for traders to open long positions. This perspective is based on differing central bank policies. We expect the U.S. Federal Reserve to cut rates by 100 basis points by early 2026, while the Reserve Bank of Australia is likely to reduce rates by only 75 basis points. This smaller rate difference should shift investments toward the Aussie dollar.

RBA’s Recent Decision

This outlook was strengthened by the RBA’s decision to keep its cash rate at 4.35% during its meeting on August 5, 2025. New data indicates Australia’s annual inflation remains high at 3.1%, significantly above the latest U.S. CPI figure of 2.8%. This situation makes it harder for the RBA to justify aggressive rate cuts. Australia also benefits from strong terms of trade. Iron ore prices, crucial for exports, have held steady above $115 per tonne in recent months. This stability supports the currency, even as the U.S. economy shows signs of slowing. From a trading perspective, this suggests buying AUD/USD call options. Choosing expiration dates in late 2025 or early 2026 aligns with the anticipated rise toward the target of 0.70. A more cautious approach could involve using a bull call spread, which would lower the initial cost while still allowing for potential gains. We’ve seen similar trends occur in the past, especially after the 2008 financial crisis. During that time, the RBA’s firmer stance compared to the Fed led to a significant and lasting rise in the AUD. The current economic conditions seem to mirror this historical trend of the Australian dollar outperforming. Create your live VT Markets account and start trading now.

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