Summary of USD and Major Currency Pairs: What's Driving Valuations in 2026?

Author: Fabien Yip, Market Analyst, IG

Publication Date: February 18, 2026

Overview

The US dollar (USD) is experiencing downward pressure in 2026, influenced by expectations of Federal Reserve (Fed) rate cuts, policy uncertainty, and differing stances among central banks. The dollar index (DXY) has lost 0.8% recently and remains down 1.2% year-to-date, despite a rebound from a four-year low.

Key Drivers of USD Valuation

• Monetary Policy Dynamics: The market anticipates two additional 25-basis-point rate cuts by the Fed in 2026, contrasting with tightening policies from the Bank of Japan (BoJ) and the Reserve Bank of Australia (RBA).
• Economic Fundamentals: The US economy is projected to grow by 2.3%–2.4% in 2026, with strong earnings growth reported among S&P 500 companies.
• Political and Market Stability: Unpredictability in US policy, particularly regarding trade, has contributed to dollar weakness, compounded by a prolonged government shutdown.
• Trade Position: A weaker dollar aligns with the Trump administration's goals of stimulating exports, although a disorderly decline could undermine the dollar's status as the primary reserve currency.
• Hedging Demand: As the dollar weakens, foreign investors are increasingly hedging against USD depreciation, creating selling pressure on the currency.

Currency Pairs to Watch

AUD/USD

The Australian dollar (AUD) has appreciated 6.2% against the USD, supported by rising metal prices and a tightening monetary policy from the RBA. The AUD/USD pair is currently consolidating above 0.69, with resistance at 0.7157 and support at 0.7013.

USD/JPY

The BoJ is cautiously normalizing policy amid persistent inflation. The USD/JPY pair has seen fluctuations, recently strengthening from 147.5 to 159.4. A critical support zone is between 152.1 and 153.3, with a bearish signal indicated by a death cross in moving averages.

USD/CNH

The renminbi (RMB) has appreciated against the USD, with the PBoC allowing gradual strengthening. Despite a 5% gain against the USD, the RMB's performance lags behind other major currencies. The medium-term trend for USD/CNH appears bearish, with support near 6.83.

Conclusion

The outlook for the USD in 2026 is shaped by a complex interplay of monetary policy, economic fundamentals, and geopolitical factors. Investors should closely monitor the evolving dynamics of major currency pairs, particularly AUD/USD, USD/JPY, and USD/CNH, as they navigate the shifting landscape of global currency markets.