Inflation and Interest Rates
The Reserve Bank of Australia (RBA) kept its Official Cash Rate steady at 3.6% during the December meeting. Governor Michele Bullock mentioned that there won’t be any rate cuts soon. The upcoming Australian Trade Balance data could influence the Australian Dollar’s future.
At the same time, the New Zealand Dollar remained strong against other currencies as the market awaited the Q4 employment data. Analysts expect a 0.3% increase in employment and an unemployment rate that stays at 5.3%.
The RBA usually decides on interest rates during eight meetings each year. A rate increase generally helps the Australian Dollar, while a more cautious approach can weaken it.
With the RBA raising its rate to 3.85%, there is a noticeable difference in monetary policies compared to other central banks. This has driven the AUD/NZD exchange rate to a multi-year high near 1.1630, supporting the Australian dollar’s strength against the Kiwi in the upcoming weeks.
Economic Indicators
Australian inflation rose to 3.8% in December 2025, prompting the RBA’s recent decision. On the other hand, New Zealand’s inflation data from late 2025 showed a slight decline to 4.5%, indicating that the Reserve Bank of New Zealand can take its time. The widening gap between rising Australian inflation and declining New Zealand inflation is a major factor for traders.
Next up is New Zealand’s employment data for the fourth quarter of 2025, expected tomorrow. A disappointing report that confirms an easing economy could lead to another surge in the AUD/NZD exchange rate. Traders might consider buying short-term call options on the AUD/NZD pair to take advantage of this upward potential.
On Thursday, Australia will release its trade balance for December 2025, with predictions suggesting a strong surplus near A$11 billion, similar to last year’s figures. A number this strong would support the view of a strong Australian economy, giving the RBA more reasons to stay cautious. This indicates that the current strength of the Aussie dollar is based on solid fundamentals and not just a temporary reaction.
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