Outlook
The AUD is likely to stay choppy and heavily influenced by risk appetite and domestic policy signals. If inflation remains elevated and the RBA tilts toward tightening, the Aussie could edge higher. Conversely, a softer global growth backdrop or weaker Chinese demand could cap gains and push the AUD lower, especially if the US dollar strengthens on risk-off flows.
Key drivers
- Inflation and RBA policy: December 2025 CPI rose 3.8% y/y, raising the odds of an RBA hike as early as February 2026. Minutes from the RBA’s December meeting signaled possible tightening, and ANZ forecast a 25bp hike at the February 3 meeting (described as a one-off adjustment rather than the start of a hiking cycle). Markets have priced in a higher-for-longer path for Australian rates.
- Risk sentiment and yields: AUD tends to behave as a risk-on currency when global sentiment improves and higher-yield assets attract investment; it can weaken in risk-off environments as funds flow to safe havens like the USD and JPY.
- China-Australia trade and commodities: China’s demand and trade policies directly affect Australia’s export backdrop. Safeguard measures and tariffs on Australian beef, plus softer Chinese factory activity, could weigh on AUD if they weigh on export revenues and commodity demand.
- Commodity prices and exposure: The Aussie remains closely linked to key goods (iron ore, coal, natural gas). Weaker commodity prices or softer global growth can temper AUD strength even if domestic conditions are supportive.
- Current price action context: The AUD sits in a broad range amid shifting risk appetite. The currency has shown meaningful moves versus USD and other peers in line with the cross-currents of inflation, policy expectations, and China trade dynamics.
Range
AUD/USD 0.6956 (range 0.6444 to 0.7046; 3-month average 0.6659)
AUD/EUR 0.5866 (range 0.5591 to 0.5888; 3-month average 0.57)
AUD/GBP 0.5081 (range 0.4913 to 0.5104; 3-month average 0.498)
AUD/JPY 107.8 (range 99.15 to 108.3; 3-month average 103.9)
What could change it
- Surprise or confirmation of RBA tightening at the February meeting (markets currently pricing a 25bp hike) could lift AUD.
- Improvement in global risk appetite or a weakening US dollar would support AUD gains, especially if commodity prices stabilise or rise.
- A stronger-than-expected rebound in China’s manufacturing activity or a clearer path to Chinese demand for Australian exports could bolster the AUD.
- Sharp moves in commodity prices (iron ore, coal, LNG) either higher or lower will tilt the AUD, given its commodity currency status.
- Escalation of trade tensions or larger-than-expected tariffs on Australian exports could weigh on AUD sentiment.
