Like the United States, Australia is geographically distant from the conflict in the Middle East. It also has a strong economy that is not heavily dependent on energy imports. Combined with the increase in the cash rate, this supports the AUD/USD pair. Let's analyze the situation and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The AUD/USD pair is poised to resume its upward trend.
- The yuan could strengthen by 9% in 2026.
- The RBA is set to raise the cash rate.
- Long positions on the AUD/USD pair can be considered with targets of 0.73 and 0.745.
Weekly Fundamental Forecast for Australian Dollar
The Australian dollar continues to benefit from three key factors: expectations of an RBA rate hike, rising global risk appetite, and the strengthening of the Chinese yuan, Australia's major trading partner's currency. These factors are pushing AUD/USD quotes higher and allowing the aussie to compete with the Norwegian krone and the Brazilian real for the title of best currency of the year.
According to Eurizon SLJ Capital, Beijing will allow the renminbi to strengthen significantly to boost the purchasing power of the population and Chinese companies abroad. This implies a drop in the USD/CNH pair to 6.2–6.4, which is approximately 9% below current levels. China is the largest market for Australian goods, so the yuan's appreciation will boost demand and benefit the AUD/USD pair.
The same applies to the Australian pension funds' intention to increase hedging of their investments in US assets, which account for more than half of their portfolios. According to surveys by the Commonwealth Bank of Australia, around 90% of these financial institutions plan to increase their AUD/USD hedging activity to manage currency risk associated with investments in US equities.
Change in FX Hedge Ratio
Source: Bloomberg.
Thus, the growing popularity of American exceptionalism, combined with record highs in the S&P 500 and other stock indices, is more likely to support than hinder the Australian dollar. Meanwhile, investors view the rally as a sign of improving global risk appetite. In such conditions, carry trades tend to perform well, and the aussie is becoming more attractive as a higher-yielding currency.
Carry Trade Efficiency
Source: Bloomberg.
Australia, like the United States, benefits from its geographic distance from the Middle East and its status as a net exporter of energy products. This supports economic stability and allows both countries' central banks to maintain a relatively hawkish stance.
Even before recent developments in the Middle East, the RBA was already leaning toward further monetary tightening and had raised the cash rate twice in 2026. Investors expect the tightening cycle to continue — if not in May, then shortly thereafter — supporting the AUD/USD pair. This is particularly relevant as the Fed remains in a wait-and-see mode.
Recent macroeconomic data reinforces the Reserve Bank's position. Australia's labor market remains strong, with unemployment at 4.3%, while inflation may accelerate from 3.7% to 4.7% in March and from 3.6% to 4.1% in the first quarter. The last time inflation was at such elevated levels was in 2023.
Weekly AUDUSD Trading Plan
Against this backdrop, the AUD/USD pair may continue its rally to 0.73 and 0.745 if it settles above 0.717. Long positions opened at 0.705 and 0.715 can be maintained and increased.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of AUDUSD in real time mode
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