Aussie Emerges as Forex Dark Horse. Forecast as of 26.05.2026 | LiteFinance
The Australian dollar initially rose on the back of a cash rate hike, the S&P 500 rally, and the strengthening of the Chinese yuan. However, it dropped when these factors disappeared. Currently, the AUD/USD pair may surge once the conflict in the Middle East ends. Let’s analyze the situation and develop a trading plan.
The article covers the following subjects:
Major Takeaways
- The RBA has concluded its tightening cycle.
- Carry trades are likely to buoy the Australian dollar.
- The yuan is poised to strengthen against the greenback.
- Long positions on the AUD/USD pair can be opened with targets of 0.745.
Weekly Fundamental Forecast for Australian Dollar
The Australian dollar stands to be the main beneficiary of an end to the conflict in the Middle East, and investors’ reluctance to miss out on this opportunity is driving AUD/USD higher even amid mutual airstrikes between the US and Iran and the end of the RBA’s monetary tightening cycle.
Weak data on the Australian labor market has made investors less confident about further cash rate hikes. Since the start of the year, the RBA has raised rates three times, bringing the key rate to 4.35%. Nevertheless, the rise in unemployment to 4.5% and the decline in employment by 18,600 in April shifted expectations in the futures market. Both figures fell short of Bloomberg’s estimates. The RBA had projected unemployment at 4.4% by mid-2027.
Market Expectations for RBA Interest Rate
Source: Bloomberg.
However, it is important to understand that even if the RBA has completed its tightening cycle, the key interest rate of 4.35% remains significantly higher than those of other G10 countries. This allows the Australian dollar to be considered a high-yield currency, one that tends to appreciate during periods of global risk appetite and declining volatility, driven by carry trades. These are precisely the processes that will unfold if the conflict in the Middle East is resolved.
US stock indices have long ignored geopolitics, thanks to the impressive earnings of S&P 500 companies in the first quarter and the strength of the US economy. However, they will also rise if an agreement is reached between Washington and Tehran. The fact is that in such a scenario, oil prices and US Treasury yields will plummet, while stocks will gain traction.
10-Year Treasury Yield and Brent Crude Price
Source: Bloomberg.
At the same time, volatility in financial markets will decline as geopolitical tensions ease, boosting demand for the Australian dollar as part of carry trade strategies.
Carry trades will support AUD/USD quotes not only directly but also indirectly—through the Chinese yuan. According to Macquarie Group, Chinese investors have stockpiled about $800 billion in US dollar positions as a yield currency. If demand for the greenback as a safe-haven currency declines, they will likely begin to close these positions. This will result in a drop in USD/CNH quotes to 6, perhaps even 5. The primary beneficiaries of the renminbi’s strengthening will be its proxy currencies, including the Australian dollar.
Weekly AUDUSD Trading Plan
This means that rising global risk appetite, lower volatility, and support from carry trades and the Chinese yuan paint a bright future for the AUD/USD pair. It may rise to 0.745 or higher, allowing traders to open long positions. This strategy can be implemented if the conflict in the Middle East ends. Otherwise, the aussie will likely face a new wave of sell-offs.
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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