Australian Dollar's Remarkable Surge

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The Australian dollar is about to extend its longest streak of daily gains of the decade.

AUD/USD is set for an eleventh consecutive positive daily close; I can't find a run of similar strength going back to 2020, and I'm sure if I had more time in a day I could pinpoint the last time this was achieved.

Nevertheless, the message is clear: this is a strong breakout and the Aussie is finally living up to expectations.

There are numerous currency analysts and market participants who have been betting on the Aussie dollar owing to superior fundamentals but have been frustrated by its failure to lift.

As we enter year-end, it looks like the stars are aligning for that move.

AUD/USD moves to 0.6635 ahead of the weekend, having plumbed the lows of a multi-month range at 0.6420 just two weeks ago.

That AUD strength is reflected elsewhere, with GBP/AUD rolling over to 2.0100. GBP has actually been an outperformer of late, and GBP/AUD's fall is testament to the fact it's the AUD which is G10's 'one to beat'.

EUR/AUD is an interesting one as the recent fall sees it probing the bottom of the long-running 2025 range at 1.76, a breakdown here surely confirms the AUD is showing its mettle.

The driver behind Aussie's gains is the shift in the country's interest rate outlook: from thinking the Reserve Bank of Australia would lower rates further, we're now facing the prospect of interest rate rises next year.

A Reuters poll shows economists now expect the RBA to hold its cash rate at 3.60% through 2026, whereas in November the poll showed at least one quarter-point cut for next year.

"Investors' bets of another rate cut faded after the latest monthly CPI data revealed that inflation rose to 3.2%, above the RBA’s 2-3% target range, and should the RBA maintain a hawkish stance at next week’s gathering, the Australian dollar is likely to continue marching north," says Charalampos Pissouros, Senior Market Analyst at Trading Point.

ANZ is one major Aussie bank that has shifted its expectations, now anticipating the cash rate to remain at 3.60% for an "extended" period, marking a significant shift from earlier forecasts that assumed additional easing in 2026.

The bank says recent inflation pressures, steadier economic growth and a labour market moving into balance mean the RBA is unlikely to deliver further cuts.

But at the same time, ANZ says it is “difficult to see a rate hike in 2026”, pointing to the rise in unemployment over the past year and conflicting signals across demand indicators.

Although confidence in further Australian dollar upside is building, one seasoned analyst is cautious of hype.

"This speculation is overdone," says Jane Foley, Senior FX Strategist at Rabobank in London.

She argues headwinds remain:

"China is Australia’s largest export partner, and it is possible that China’s attempts to tackle deflation and industrial overcapacity will create headwinds for Australia’s economy," says Foley.

On the RBA story, she points out that central bank rate hiking expectations are not unique:

"The RBA is not the only G10 central bank that has been caught up in market speculation regarding the risks of a rate hike in 2026."

Rabobank continues to forecast "only a modest push higher in AUD/USD to 0.69 on a 12-month view."