RBA Rate Hike Lifts AUD Again: Will Australian Dollar Continue Rising in 2026?

TradingKey - While major global economies were still mired in a "rate-cut race," the Reserve Bank of Australia (RBA) dropped a bombshell in February 2026 by raising rates by 25 basis points. This contrarian move completely disrupted the market's rhythm. Australian Dollar (AUD) Having risen strongly so far this year, continuing the upward trend from 2025, will the Australian dollar's exchange rate continue to climb in 2026?

An unexpected 25-basis-point rate hike, The Reserve Bank of Australia Why the "about-face"?

At its monetary policy meeting on February 3, 2026, the Reserve Bank of Australia announced it would raise the cash rate by 25 basis points to 3.85%, a decision that caught many traders betting on a "global wave of rate cuts" off guard.

RBA Governor Michele Bullock emphasized in the statement that growth in private sector demand far exceeded expectations. In the second half of 2025, despite relatively high interest rates, Australian household consumption and business investment showed remarkable resilience, leaving the economy in a state of capacity pressure where "demand exceeds supply."

While rate hikes typically dampen employment, Australia's unemployment rate unexpectedly fell to 4.1% in early 2026. Businesses continue to complain about hiring difficulties; this extremely tight labor market is driving up wage growth, creating a classic "wage-price spiral" risk.

Interest rate differentials are a major driver of exchange rates; when the Federal Reserve (Fed) has entered a rate-cut cycle while the RBA resumes hikes, the narrowing or even inversion of the AUD/USD spread has directly attracted massive carry trade inflows. The Australian dollar is currently approaching the 0.70 mark against the US dollar, with an opportunity to break through this resistance level and reach a new high since late 2024.

Could persistent inflation become a catalyst for the Australian dollar's rise in 2026?

Australia's current inflation situation is the core logic determining the Australian dollar's trajectory. The latest CPI data for the fourth quarter of 2025 shows Australia's headline inflation rebounding to 3.8% (up from 3.4%), while the Trimmed Mean inflation—the RBA's preferred measure—climbed to 3.3%.

In the short term, as long as inflation remains above the 3% target range, it will be difficult for the RBA to adopt a more dovish stance. This "determination to fight inflation" provides a solid policy floor for the AUD.

In the medium to long term, if sustained high inflation leads to a collapse in consumer purchasing power, the economy could slip into stagflation, which would instead undermine the AUD's long-term credit. For now, however, the market prefers the trading narrative of "high inflation = high rates = strong AUD."

The RBA's quarterly Statement on Monetary Policy (SoMP) What signals did it send?

The RBA's quarterly statement explicitly stated that "it may take longer than expected for inflation to return to the 2-3% target range." This suggests the RBA does not rule out the possibility of another rate hike in the first half of 2026.

The RBA raised its economic growth forecast for 2026, projecting GDP growth of around 2.1%. This indicates the economy has not stalled due to high rates, giving the central bank more confidence to hike further.

The RBA believes financial conditions in 2025 may have been "too accommodative," suggesting the current 3.85% rate might be merely "neutral" rather than "restrictive."

Beyond central bank policy, the Australian dollar, as a quintessential "commodity currency" and "risk currency," is also influenced by the following factors.

Commodity Cycle: Iron Ore and Gold

Australia is the world's largest exporter of iron ore. In 2026, with the steady recovery of China's infrastructure investment and global demand for EV raw materials, firm prices for copper, lithium, and iron ore will continue to support the AUD. Furthermore, gold prices if they stabilize above A$5,000 per ounce, will act as a powerful booster for the AUD.

The "Pulse" of the Chinese Economy

China is Australia's largest trading partner. Every rebound in China's PMI data typically triggers a reaction in the AUD exchange rate 2 to 4 weeks in advance.

Geopolitics and Risk Aversion

The Australian dollar is a high-beta currency. If significant global geopolitical conflicts arise in 2026 and capital flows into US Treasuries for safety, the AUD will be among the first to come under pressure.

Goldman Sachs noted in its latest research report in February 2026 that as the Federal Reserve (Fed) deepens its rate-cut cycle, the AUD/USD interest rate differential will shift from previous negative values toward symmetry or even turn positive. Goldman Sachs believes the AUD is currently significantly undervalued. Given that Australia's inflation is far more "sticky" than that of the US, Goldman predicts AUD/USD will stabilize at 0.7100 by mid-2026 and maintains an "Overweight" recommendation.

Morgan Stanley believes that the "resilience" of the Australian economy in 2026 acts as a moat for the exchange rate. They forecast that the AUD will exhibit extremely strong risk-beta characteristics in 2026. As long as the S&P 500 continues to hit its targets (such as 7,500 points), the AUD, as a high-beta currency, will attract significant yield-seeking capital flows. Morgan Stanley expects a year-end target near 0.7250.