Outlook
The Australian dollar (AUD) is expected to stay supported near multi-week highs if risk appetite remains firm, helped by stronger Chinese data and the prospect of RBA policy tightening in 2026. A close link to China means ongoing improvement in that economy could sustain commodity demand and lift the AUD, while forthcoming domestic inflation and labour-market data will test this dynamic. If risk sentiment turns sour or the US dollar strengthens, the AUD could retreat.
Key drivers
- Upbeat Chinese data boosting risk appetite (investor willingness to take on risk) and commodity demand, supporting the AUD.
- RBA minutes signalling potential rate hikes in 2026, lifting yield differentials in favour of the AUD.
- China’s uneven rebound weighing on iron ore exports and, therefore, some AUD support, depending on sector demand.
- Domestic data in focus: January 7 CPI and January 22 Labour Force can surprise markets and shift expectations for the RBA path.
- Global risk mood and commodity price moves remain key drivers for the AUD, given its status as a commodity currency.
Range
AUD/USD: 0.6735; 7-day high near 0.6735; 3-month average 0.6603; range 0.6444-0.6739
AUD/EUR: 0.5741; 3-month average 0.5671; range 0.5589-0.5771
AUD/GBP: 0.5009; 3-month average 0.4961; range 0.4858-0.5014
AUD/JPY: 106.5; 3-month average 102.9; range 98.60-106.6
What could change it
- A fresh wave of risk-off sentiment or a stronger US dollar could push AUD lower.
- A clearer path to earlier or faster RBA rate hikes (e.g., stronger-than-expected CPI or labour data) would bolster the AUD.
- A sharper-than-expected slowdown in China or a renewed drop in iron ore prices could weaken the AUD.
- Unexpected domestic data outcomes (CPI or Labour Force) diverging from market expectations could swing near-term moves.
