Australia’s RBA Commodity Index (SDR, year-on-year) rose to 15.7% in April. It was 12.8% in the previous reading.
This accelerating commodity price data strongly suggests inflation will remain persistent. We should anticipate the Reserve Bank of Australia shifting to a more hawkish stance in its upcoming statements. Derivative traders should consider using interest rate swaps or futures to price in a higher probability of a rate hike before the end of the third quarter.
Australian Dollar Upside Scenario
The Australian dollar is poised to benefit from both rising export values and widening interest rate differentials. We should look at buying AUD/USD call options, as the pair could break above the 0.6800 resistance level it has struggled with for much of this year. Looking back at the commodity boom of 2021-2022 from our perspective in 2025, we recall how quickly the AUD rallied on strong terms of trade.
This environment creates a clear divergence in equity sectors. We can use derivatives to gain long exposure to the materials sector, particularly iron ore miners, which are seeing their margins expand significantly. A pair trade, such as going long a materials ETF and short a consumer discretionary ETF, could hedge against the broader market impact of a more aggressive RBA.
The data confirms the underlying strength in raw materials, driven by solid industrial demand from Asia. Iron ore futures traded on the Singapore Exchange have already climbed 8% in the past month, reflecting tight supply and resurgent manufacturing activity. We saw a similar build-up in late 2022 before a sustained rally, suggesting now is the time to build long positions in key industrial metals.
