RBA Preview: The Global Outlier Prepares to Hike

While the Federal Reserve and ECB contemplate easing cycles, the Reserve Bank of Australia (RBA) is moving in the opposite direction. Markets are pricing in a high probability of a 25 basis point hike to 3.85% at Tuesday's meeting, creating a sharp policy divergence that could redefine AUD crosses.

Data Demands Action

Governor Michele Bullock faces an uncomfortable reality: Australian inflation is sticky, and the economy remains too hot.

• Unemployment: Dropped unexpectedly to 4.1%, signaling a tight labor market.
• Inflation: Core CPI remains stubbornly above the 2-3% target band in Q4 2025.
• Leading Indicators: Job ads are surging at the fastest pace since 2022.

“Inflation is a clear and present danger,” notes Stephen Miller of GSFM. “If they don't act now, they may have to act more aggressively later.”

The Carrier Trade Revival?

This hawkish pivot makes the AUD a unique play. Despite recent weakness against the USD driven by the “Warsh Shock” and China growth concerns, the AUD is outperforming on a Trade-Weighted Index (TWI) basis.

If the RBA delivers a “hawkish hike”—signaling this is not just a one-off insurance move—yield-seeking capital could flow back into the Aussie. However, the currency faces headwinds from the commodity crash. With Iron Ore and Energy prices volatile, the AUD/USD pair is caught between a hawkish domestic central bank and a collapsing terms-of-trade environment.

Watch Point: The RBA Rate Statement at 2:30 PM Sydney time. Any softening of the inflation outlook could see the AUD punish late bulls, but a commitment to crushing inflation will solidify the Australia-Global/G7 divergence.