Australia’s TD-MI Inflation Gauge was unchanged at 4.3% year-on-year in April.
The reading shows annual inflation, as measured by the TD-MI gauge, held steady compared with the previous period.
Looking back, we remember this time last year when April 2025 inflation was stuck at a stubborn 4.3%. This persistent figure kept the Reserve Bank of Australia (RBA) firmly on hold, pushing any talk of interest rate cuts far into the future. That environment rewarded traders who were positioned for a “higher for longer” rate scenario.
Today, the situation has changed significantly as we enter May 2026. The most recent official quarterly inflation data released last week showed the annual rate has fallen to 3.1%, which is much closer to the RBA’s target band. This has completely shifted the market’s focus towards the timing of the first potential rate cut ahead of the RBA meeting tomorrow.
We see this reflected in interest rate futures, which are now pricing in a 60% chance of a 25-basis-point rate cut by the RBA in the fourth quarter. This suggests traders should consider positions that will profit from falling rates later in the year. This is a stark contrast to the hawkish sentiment that dominated markets in 2025.
For traders focused on the Australian dollar, which is currently trading near 0.6480 against the US dollar, this creates a clear opportunity. We believe buying AUD put options is a sensible way to hedge against the RBA sounding more dovish than expected tomorrow. A softer tone from the central bank could easily push the currency lower.
Given that overall market volatility is lower than it was during the uncertain periods of 2025, options on the ASX 200 index are now relatively cheaper. This presents a cost-effective way to position for a potential market rally if the RBA confirms the inflation threat has passed. We think buying call options or establishing bull call spreads could be effective strategies in the coming weeks.
