China is Australia's main buyer of industrial raw materials. Image © Adobe Images.
It's been a strong start to 2026, but the Australian dollar could be about to relinquish its crown say a number of tier-one analysts we follow.
A new research note from TD Securities confirms the Australian dollar's year-to-date rally is comparable to the best seen over the past 15 years.
However, with a strong performance comes complications: positioning could start to work against the currency; like wading through treacle, excessive long positioning can result in fatigue and pullback.
Net long AUD positioning now sits at its highest level vs the past decade.
TD Securities sees 0.72 acting as an anchor level for AUD/USD in Q2 and Q3.
"Near-term bullish AUD drivers may be priced in as we expect only one more RBA rate hike for this cycle at the August meeting. A breakthrough beyond our year-end 0.73 forecast would likely require market focus to shift toward dovish Fed guidance and further broad-based USD weakness to materialise in 2026," says TD.
Consensus projections for the next four quarters, compiled from leading investment banks.
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The RBA has already raised interest rates three times this year, supporting Aussie bond yields and making them attractive to international investors. The inflows of capital this attracts bolster AUD's value.
"The RBA has hiked 75bp this year to 4.35%, making Australia one of the most attractive G10 currencies from a carry perspective," explains Morgan Stanley in a mid-year FX market update.
Above: The best start to a year in 15 years. Source: TD Securities.
However, the RBA tailwind is losing strength, with this week's fall in employment hinting that the economy has responded to earlier hikes and the effects of the Middle East war. "We maintain our view that the RBA cash rate has peaked at 4.35%, and see a high bar for further hikes," says Nicholas Chia, FX Strategist at Standard Chartered.
Crédit Agricole also sees a retreating RBA advantage: "Rising global bond yields are signalling that other G10 central banks may soon have to start playing catch up with the RBA and begin raising rates, eroding some of the AUD’s yield advantage," says David Forrester, Senior FX Strategist at Crédit Agricole.
Crédit Agricole has on Thursday initiated a short AUD/NZD trade, noting that AUD's outright advantage is fading.
"AUD/NZD increasingly looks like it is topping out and set to grind its way back towards its RBA-RBNZ inflation targeting historical average of 1.16 as the extreme divergences between Australian and NZ rates as well as terms of trade begin to retrace," says Forrester.
He also notes that "China's soft cyclical data is also not helping the AUD’s cause."
China is Australia's main export destination, and any slowdown in demand poses headwinds for the Aussie.
"Sell AUD/NZD: the end of extremes is nigh," says Forrester.
Above: Extreme positioning is a headwind. Source: TD Securities.
