AUD/USD Outlook: The Australian dollar is likely to increase, trading significantly above its recent average and near recent highs due to strong economic indicators from China.
Key drivers:
- Rate gap: The Reserve Bank of Australia's potential stance on interest rate hikes in 2026 contrasts with the Federal Reserve's expectation of rate cuts, supporting the AUD.
- Risk/commodities: The AUD is bolstered by the recent rise in demand for commodities, fueled by positive data from China, Australia's largest trading partner.
- One macro factor: The upcoming Australian labor force report may further influence expectations around domestic economic strength.
Range: The AUD/USD is expected to hold its current levels but may test upper extremes in the near term if demand remains strong.
What could change it:
- Upside risk: Stronger-than-expected Chinese economic data could drive the AUD higher.
- Downside risk: Heightened geopolitical tensions impacting investor confidence might lead to a pullback in the AUD.