The Australian dollar has delivered a broadly constructive performance so far in 2026, although some of that momentum has moderated during March. The RBA’s trade-weighted index rose from 62.2 on 2 January to 64.7 on 27 March, an increase of approximately 4.0%. Over the same period, AUD/USD advanced from 0.6699 to 0.6911, resulting in USD/AUD moving lower from 1.4928 to 1.4470. AUD/GBP also strengthened from 0.4970 to 0.5179, with GBP/AUD declining from 2.0121 to 1.9309. In contrast, EUR/USD eased from 1.1721 on 2 January to 1.1517 on 27 March. Overall, the Australian dollar has appreciated since the start of the year, with the strongest gains seen against sterling, while the U.S. dollar has recovered some momentum toward the end of the quarter.

The domestic backdrop has remained supportive for the currency. The RBA increased the cash rate to 3.85% in February and again to 4.10% in March, highlighting firmer inflation pressures and the risk that inflation may remain above target for longer than previously expected. Economic data have also remained sufficiently resilient to justify a relatively hawkish stance. CPI rose 3.7% year on year in February, GDP expanded by 0.8% quarter on quarter and 2.6% year on year in Q4 2025, wage growth was 3.4% year on year in the December quarter, and labour market conditions remained comparatively firm, with unemployment at 4.2% in trend terms and 4.3% on a seasonally adjusted basis in February. Taken together, these factors have continued to support the view of Australia as a relatively high-yield and resilient economy, which has in turn underpinned the AUD.

USD/AUD

The primary theme in USD/AUD this year has been strong AUD performance through the early part of the quarter, followed by a partial reversal as the U.S. dollar regained support in March. Interest-rate differentials were an important driver initially, with the RBA now at 4.10% while the Federal Reserve held its target range at 3.50% to 3.75% on 18 March. That rate advantage, combined with firm Australian data, helped drive USD/AUD lower from 1.4928 at the start of January to 1.4470 by 27 March. However, the move was not linear. During March, the U.S. dollar benefited from renewed safe-haven demand as tensions in the Middle East pushed oil prices higher and revived concerns over a renewed global inflation shock. As a result, USD/AUD has shifted from a clear early-quarter AUD outperformance narrative to a more balanced late-quarter profile, where relative yields continue to favour the AUD, but geopolitical uncertainty is offering support to the U.S. dollar.

GBP/AUD

GBP/AUD has been even more supportive of AUD strength than USD/AUD so far in 2026. The pair fell by around 4.0% between 2 January and 27 March, moving from 2.0121 to 1.9309. This has been driven in part by the policy differential, with the RBA now at 4.10% compared with the Bank of England’s 3.75% Bank Rate in March. Sterling has also faced a less supportive macro backdrop. The BoE has acknowledged that the Middle East shock is adding to energy-price pressures and increasing near-term inflation risks in the UK, while late-March sentiment showed sterling coming under pressure against the U.S. dollar as markets rotated toward safer assets. Consequently, although the AUD also softened later in March, sterling did not receive enough support to alter the broader downward trend in GBP/AUD over the quarter.

EUR/USD

EUR/USD remains a useful external reference point in assessing the wider U.S. dollar environment influencing the AUD. The pair began the year on firm footing and traded as high as 1.1974 on 28 January, before falling back to 1.1517 by 27 March. Part of that move reflects policy divergence, with the ECB leaving its deposit facility rate at 2.00% in March, well below the Fed’s 3.50% to 3.75% range. In addition, the energy shock has added pressure, with higher oil and gas prices creating both inflation risks and growth headwinds for Europe. For the Australian dollar, this is relevant because a firmer broad U.S. dollar backdrop, combined with a weaker EUR/USD profile, tends to make it more challenging for higher-beta currencies such as the AUD to sustain gains against the greenback, even when domestic fundamentals remain supportive.

Summary

In summary, the Australian dollar has been a relative outperformer so far in 2026, supported by a more hawkish RBA, resilient domestic economic conditions and an improved trade-weighted profile. The quarter can broadly be divided into two phases: a supportive January-February period for the AUD, followed by a more challenging March as the U.S. dollar regained strength amid rising geopolitical and inflation concerns. Within that context, USD/AUD remains below its starting level for the year, although the move has become less one-sided than it appeared earlier in the quarter. GBP/AUD continues to reflect clear year-to-date AUD outperformance, while the decline in EUR/USD reinforces the view that late-quarter FX dynamics have been shaped more by broad U.S. dollar strength than by any meaningful deterioration in the Australian outlook.