Recent analysis shows that the Reserve Bank of Australia might raise interest rates soon. This comes after the NAB December business survey, which revealed that business confidence is at a two-month high. This improvement suggests a possible increase in the cash rate. A major influence on the Australian Dollar will be the upcoming CPI inflation data. If the December trimmed mean CPI inflation exceeds the RBA’s 3.2% yearly forecast, a rate hike in February is likely, which would boost the AUD.

Market Analysis and Insights

The FXStreet Insights Team uses data-driven methods for market analysis, combining insights from experts to offer timely information. Other currencies, like the Japanese Yen and Euro, along with commodities such as gold, are seeing price changes due to various economic factors. These shifts reflect wider market trends influenced by geopolitical issues, economic predictions, and investor feelings. It’s important to remember that all investment choices should follow careful research and an understanding of potential risks. Those interested in these markets must stay updated on changes and trends. Looking back at analyses from late 2025, it was suggested that solid business conditions and high inflation would benefit the Australian Dollar. The vital inflation data for the December 2025 quarter has now been released, showing a trimmed mean CPI of 3.4% year-on-year, above the RBA’s forecast. This has strengthened expectations for a change in monetary policy.

Anticipations and Market Reactions

Given this, the market now expects the Reserve Bank of Australia to raise the cash rate in its meeting on February 3rd. Interest rate swaps now indicate over an 85% chance of a 25 basis point increase, marking a significant change from a month ago. The AUD/USD exchange rate has reacted positively, rising from below 0.6700 to test the 0.6800 mark in the past week. For derivative traders, much of this rate hike news is already priced in, making straightforward long positions risky. Buying AUD call options may be costly, as implied volatility is high ahead of the RBA’s decision. A more cautious approach could be a bull call spread, which would benefit from gradual increases after the meeting while keeping initial costs down. A significant risk to consider is a “dovish hike,” where the RBA raises rates but implies the tightening cycle is ending. This could lead to a sharp decline in the AUD, as the market has anticipated a more aggressive approach. To hedge against this risk, traders might consider purchasing short-dated put options to protect against a quick market drop following the announcement. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now