The Australian dollar (AUD/USD) in the form of the Invesco CurrencyShares Australian Dollar Trust (FXA) is up 7.0% since I made the case for going long. Back in May, I pointed out the growing strength of the Australian economy as a positive catalyst for the currency. Combining the economic metrics with a 14-year bias to the downside convinced me that the Australian dollar has a lot of potential upside in the coming years. This case became yet more compelling after surprisingly strong jobs numbers swung the odds for a rate hike (of 25 basis points) by the Reserve Bank of Australia (RBA) from the 20-30% range all the way up to 60%.

FXA rode the economic tailwinds to a breakout for a 15-month high.

Data from the Australian Bureau of Statistics (ABS) suggests that the unemployment rate has likely peaked at October’s 4.4% with December’s reading at 4.1%.

Even more important for monetary policy, the consumer price index (CPI) in Australia is above the RBA’s target 2-3% range. After dropping as low as 1.9% last year, the CPI suddenly rebounded above the RBA’s target range. Improving economic numbers will thus threaten to keep inflation higher than target if the RBA does not pivot to a tighter policy stance.

The Australia CPI has launched above the 2-3% target range.

And then there are commodities, the core of Australia’s economy. Companies like iron ore producer Rio Tinto have enjoyed strong rallies to start the year as investors wake up to the economic realities of massive infrastructure and energy investments to support the AI boom along with the increasing attractiveness of physical assets as major countries pile on more and more debt. I started accumulating RIO in October and included the stock on my shopping list for 2026. So far, the price action has yet to deliver any kind of buyable dip. The strength of these commodity plays suggests that commodity-rich economies are going to experience upward pressure on their currencies. The breakout in RIO aligns well with the breakout in the Australian dollar.

Rio Tinto plc (RIO) has gained 13% year-to-date to a near 5-year high.

Conclusion

All signs point to continued strength in the Australian dollar. A pivot in monetary policy will all but confirm a bias higher for the currency. Moreover, Australia looks relatively more attractive as a country versus major economies like Japan and the U.S. where policy and political turmoil along with mounting debt levels could keep those respective currencies under constant pressure. My main question now is how and when will fresh buying opportunities come.

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