Australian Demand Signals Stay Firm
S&P Global’s Composite New Orders data show Australia’s new orders are expanding, listed as above 50, and are the highest among developed-market peers. NAB’s February Business Survey showed forward orders at their highest level since late 2022. The article notes limited spare capacity in the economy and wide variation in NAIRU estimates. Treasury is cited at 4.25%, while RBA testimony to the Economics Legislation Committee is cited at 4.6%. It also refers to developments in domestic data and Iran as factors that could affect the inflation outlook. The piece states that recent data have pointed to upside inflation information and reinforced the view that spare capacity is limited. Looking back at the analysis from early 2025, the call for the Reserve Bank of Australia to hike rates twice to 4.35% by May of that year was on the money. That move was driven by strong growth and a tight labour market, which forced the RBA’s hand. We are now seeing a similar setup unfolding in March 2026.Trading Implications For Rates Vol And Fx
The Australian economy is once again showing signs of running hot, much like it did in early 2025. The latest Judo Bank Flash Composite PMI for March came in at a strong 52.4, indicating solid business expansion and order books. Meanwhile, the labour market remains incredibly tight, with the unemployment rate holding at a low 3.9% in the most recent report. This strength is creating renewed inflation problems, just as we saw back then. The latest quarterly CPI figure surprised many by coming in at 3.8%, a noticeable acceleration and still well above the RBA’s 2-3% target band. This data confirms that the economy has very little spare capacity left to absorb price pressures. For derivative traders, this means the market is likely underpricing the risk of further RBA rate hikes from the current 4.35% level. We believe traders should look at paying fixed on 2-year interest rate swaps. This position will profit if the RBA is forced to hike rates at least once or twice more this year to re-establish its credibility. In the options market, rising uncertainty points towards higher volatility. Buying call options on Australian 3-year bond futures offers a way to position for rising yields with a defined risk. This strategy would benefit from a hawkish shift in the RBA’s tone in the coming weeks. This environment should also be positive for the Australian dollar, especially as other major central banks are considering rate cuts. Traders could consider buying AUD/USD call options to position for a stronger currency. The widening interest rate differential between Australia and the United States makes this a compelling trade. Create your live VT Markets account and start trading now.
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