Good news for travellers as Aussie dollar set to soar in 2026

2 hours ago 3

A predicted divergence in global interest rates will see the Australian dollar continue to appreciate throughout 2026, spelling good news for international travellers and many ASX heavyweights.

The dollar currently buys 0.66 US cents, with the currency slowly appreciating since January where it sat at just 0.61 cents. However, analysts expect the AUD could grow between 10 per cent and 40 per cent next year, thanks to the actions of Australia and the US’ central banks.

The Aussie dollar started the year weakly, but has slowly grown since then.

Despite the Reserve Bank cutting interest rates three times this year, even as recently as August, a spike in inflation coupled with stronger than expected economic growth has all but eradicated any expectations of another cut to the cash rate.

Instead, predictions are slowly firming that RBA Governor Michele Bullock will hike rates by 0.25 per cent at the central bank’s first meeting in February, with big four banks CBA and NAB now both expecting the move.

The central bank is concerned about inflationary pressures in the economy, with inflation coming in at 3.8 per cent in the 12 months to the end of October, well above the RBA’s 2-3 per cent range. “It is very uncertain what [inflation] is temporary and what is persistent,” Bullock said earlier this month.

However, the US Federal Reserve cut rates in December and could cut them again in the new year given increased pressure from President Donald Trump, a situation which is likely to benefit the Aussie dollar.

“Just like in share markets how earnings are one of the surest predictors of share price moves, in currency markets, interest rate differentials are a similar predictor,” says Michael McCarthy, market strategist at trading platform Moomoo.

“With Australia looking at tightening interest rates from here, and the US still looking at lowering rates, over the medium term the Australian dollar is likely to head higher.”

This is because higher interest rates are more attractive for international investors, prompting them to purchase more Australian assets such as bonds, increasing the demand for the Aussie dollar, which in turn increases the price.

McCarthy has a price target of 72 US cents for the AUD in 2026, which would mark the currency’s highest value since 2022, where it hit 76 cents. Similarly, Shane Oliver, chief economist at AMP, expects the dollar to hit 73 US cents.

An increase in the local dollar is positive for travellers heading overseas as it allows the currency to stretch further.

However, analysts at investment bank UBS have opened the door to an increase of between 10 per cent to 40 per cent – the upper end of which would value the currency around 92 US cents – pointing to similar situation following the GFC where interest rate divergences have caused major spikes in the AUD.

UBS economist George Tharenou also noted foreign interest in Australian government bonds was also near record highs, rising sharply to $42 billion in the third quarter of the 2025 financial year, the largest since 2020 and near the highest on record.

An increase in the local dollar is positive for travellers heading overseas as it allows the currency to stretch further. It can also be a boon for businesses who import a significant number of goods, such as electronics retailer JB Hi-Fi, as it reduces costs.

But a rising AUD can be a double-edged sword for investors, as it can hurt companies who export, especially mining heavyweights such as BHP who sell much of their goods overseas.

McCarthy also notes a downturn in commodity prices could weigh on any mooted growth in the Aussie dollar. Gold has soared to record highs in 2025, currently valued at over $US4400 ($6610) an ounce, and other key metals such as copper and silver have also seen significant increases.

“If those commodities crash, that would potentially be a counter balancing weight on the Aussie dollar, particularly if there’s any disruption to the global economy,” he says.

Additionally, any significant downturn in the global or Australian economy could also press pause on the dollar’s run, as it could prompt further rate cuts from the RBA.

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