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 currencyโs 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.Credit: Getty Images
However, analysts at investment bank UBS have opened the door to an increase of between 10 per cent to 40 per cent โ the upper end of which would value the currency around 92 US cents โ 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.
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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.
โIf those commodities crash, that would potentially be a counter balancing weight on the Aussie dollar, particularly if thereโs any disruption to the global economy,โ he says.
Additionally, any significant downturn in the global or Australian economy could also press pause on the dollarโs run, as it could prompt further rate cuts from the RBA.
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