The rise of the Aussie, the Australian dollar

The contrast between the icy winter weather in the Netherlands and the summer temperatures of Australia is stark. Down Under beckons not only with beaches and nature, but also with a strong dollar.

Fans of the hit series Stranger Things are well acquainted with The Upside Down. From personal experience, I can say that Down Under is a much better destination. The weather in Australia is considerably more pleasant. Admittedly, there are also quite a few strange creatures around. But they're nowhere near as scary as the monsters from Stranger Things. In other ways, Australia feels very otherworldly. The public transport network, for example, is much better than in the Netherlands, and you often only pay the equivalent of 30 euro cents for a ticket. Moreover, you don't have to worry about snow, frost, and frozen points.

Increasingly expensive
Incidentally, a trip to Australia is becoming increasingly expensive. This is largely due to the strength of the Aussie, as the Australian dollar is also known. At the beginning of April, you were getting almost 1,85 Aussie for your euro, but now that's less than 1,75. This rise is likely to continue in 2026. Primarily, the currency is benefiting from a policy shift at the central bank. Last year, the Reserve Bank of Australia (RBA) lowered the policy rate in three steps from 4,3% to 3,6%. However, it's likely that this rate will rise again in 2026. Inflation shot up from 1,9% to 3,8% between June and October.

Exciting night
The market is holding its breath for the November inflation figure, which will be published tonight (January 7th). If inflation remains at current levels or rises further, it's likely the policy rate will rise further than the single rate hike many economists are currently pricing in. The RBA targets inflation of 2% to 3%. Higher interest rates are a proven way to curb rising inflation. Besides the prospect of rising interest rates, the Aussie also has the tailwind of high iron ore prices. Since the end of June, the price of that commodity has risen by more than 10%.

Raw materials and growth
Since the country accounts for more than half of global iron ore exports, this price increase translates into increased demand for the Australian dollar. Ultimately, whether the Aussie's recovery continues also depends on what happens in China. The Asian country is the most important trading partner. The cautious recovery of the Chinese economy is having a positive impact on Australia, which is on track for economic growth of over 2% in 2026. If everything falls into place, it could be another good year for the Australian dollar. But anyone considering a holiday Down Under shouldn't be deterred. Some destinations are more than worth the price – especially for those who want to trade the Dutch winter for some sunshine.

Joost Derks

Joost Derks is a currency specialist at iBanFirst. He has over twenty years of experience in the currency world. This column reflects his personal opinion and is not intended as professional (investment) advice.

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