The Australian dollar’s performance will largely mirror movements in the US dollar, with limited support from China or increased Australian interest rates, according to Commonwealth Bank’s head of international economics and foreign exchange, Joseph Capurso. Commonwealth Bank of Australia (CBA) is a multinational bank providing a wide range of financial services. CBA is one of Australia’s largest and most prominent financial institutions.
Capurso anticipates the Australian dollar will peak around US70¢ in early 2026 before experiencing a decline later that year. While he foresees near-term weakness in the US dollar, he suggests that “US exceptionalism” is poised to bolster the greenback in 2026, even amidst anticipated Federal Reserve rate cuts.
Slower economic growth in China, with Beijing potentially lowering its 2026 growth target to between 4.5 per cent and 5 per cent, will likely curtail upside potential for commodities and, consequently, the Australian dollar. Australia’s improving yield outlook could offer some support, with markets pricing in a 25 basis point Reserve Bank of Australia (RBA) hike in 2026 due to domestic growth pressures elevating inflation risks.
However, the Australian dollar is expected to face headwinds from global political and geopolitical uncertainties, coupled with a renewed perception of Australia as an “old economy” heavily reliant on mining and agriculture rather than emerging sectors like artificial intelligence. CBA anticipates that the AUD/USD exchange rate will remain below its long-run average of US75¢ for the foreseeable future. Upside risks are skewed towards potential stimulus from China, while downside risks include the possibility of a global recession or significant geopolitical conflict.
