UBS forecasts Australian dollar to reach 0.70 against US dollar in first half of 2026

The Australian dollar hit its highest level since November 2024 (0.658) as the US-China trade truce and easing geopolitical tensions boosted market risk appetite, UBS reports.

However, soft Australian inflation data weighed on the local currency. As a result, money markets have now fully priced in a 25 basis point rate cut for July and lowered the terminal rate forecast to 3.85%.

Meanwhile, UBS analysts believe the Reserve Bank of Australia's approach is more nuanced than markets suggest. Declining global uncertainty and rising home sales figures don't signal a need for accelerated monetary easing.

Net short positions on the Australian dollar remain substantial. Analysts at UBS believe this may limit the downside risk, while a sharp reversal of these positions could become a driver of growth. The company forecasts that the Australian dollar to US dollar exchange rate will reach 0.70 in the first half of 2026.