The Australian dollar has pulled back from its highest level since October 2024, trading around 0.66, as a stronger U.S. dollar exerts downward pressure, according to a UBS report.
UBS noted signs of economic improvement in Australia, with rising consumer activity, stronger housing construction, and a positive trend in credit growth and home prices. Inflation remains within the Reserve Bank of Australia’s (RBA) target range, with the bank’s preferred trimmed mean falling to 0.6% quarter-over-quarter and 2.7% year-over-year.
UBS expects the RBA to cut interest rates in August and November, followed by a final cut in February 2026, bringing the terminal rate to 3.1%. This outlook is slightly above current market expectations, which predict nearly three rate cuts by year-end and a final rate just under 3%.
For investors dealing in Australian dollars, UBS projects the AUD/USD will reach 0.70 by mid-2026, offering an opportunity to hedge U.S. dollar long positions. The bank also sees strategic value in hedging against currencies like the Singapore dollar, Swiss franc, and Chinese yuan.
Additionally, UBS recommends maintaining hedges on British pound exposure, as the Bank of England is expected to cut rates more aggressively than the RBA amid weaker UK economic conditions. The firm highlights 0.62 as a key technical support level for the AUD/USD exchange rate.
