The Reserve Bank of Australia is likely to announce a move towards stricter monetary policy soon. This aligns with actions taken by other central banks, such as Norges Bank, as they work to tackle inflation. The Australian Dollar (AUD) has been doing well, showing strong inflows with significant net inflows since October. The small number and size of outflows have helped boost its performance, leading to conversations about future changes.

AUD/USD Performance

The AUD/USD pair is doing better than expected, despite typically minor impacts from currency movements in iFlow data. It hasn’t experienced any outflows in two weeks, which has helped maintain strong flow scores in recent months. Data shows there have been significant outflows in AUD. This suggests that some domestic entities may be reducing their forward AUD investments in U.S. markets. The increasing interest rate differences are improving expectations for AUD long positions, as people anticipate possible rate hikes by the RBA. This forex situation is guided by insights from various experts, both commercial and internal, offering strategic observations. With expectations that the Reserve Bank of Australia will tighten policies, we see a shift away from the US Federal Reserve, which seems to be on a long pause. Australia’s latest quarterly inflation report for Q3 2025 showed a stubborn 4.5%, increasing speculation about a rate hike in early 2026. As a result, Overnight Index Swaps now indicate over a 70% chance of a 25 basis point hike by February.

Inflows and Trading Strategies

Since October 2025, we have noticed strong and consistent inflows into the Australian dollar, pushing the AUD/USD pair toward the 0.6850 level. Traders wanting to take advantage of a more hawkish RBA might consider buying AUD/USD call options to benefit from potential gains. This strategy also helps set risk limits if the RBA takes a less aggressive stance than expected, leading to a pullback. The growing interest rate gap between Australia and other major economies is a primary factor driving this trend. This is especially clear in forward markets, where holding long AUD positions against currencies with lower yields is more beneficial. We believe this positive flow will support the Aussie dollar’s strength. Comparing the AUD with other currencies like the Japanese Yen and Euro makes an even stronger case for being long on the AUD, as those central banks remain more dovish. Using derivatives such as AUD/JPY futures or call options may perform well if the RBA stays true to its commitment to combat inflation. This is based on the likelihood of an even larger interest rate gap with those regions. Reflecting on the RBA’s aggressive tightening cycle in 2022 and 2023, we remember that the initial pivot gave the currency sustained momentum. However, given the significant rally over the past two months, much of the positive news may already be reflected in the current price. Therefore, structuring trades with options can be a wise way to manage the risk of a “buy the rumor, sell the fact” situation. Create your live VT Markets account and start trading now.

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