Australia’s TD-MI Inflation Gauge rose by 0.6% month on month in April. This was down from 1.3% in the previous month.
The latest reading shows a slower pace of increase in the gauge compared with March. The change is measured on a month-on-month basis.
Inflation Momentum Slows
We have seen the TD-MI Inflation Gauge for April cool significantly to 0.6% month-on-month. This is a sharp drop and the first major sign that inflationary pressures may finally be easing in a meaningful way. This follows a stubborn first quarter where official CPI data, released just last week, showed annual inflation at 3.8%, well above the RBA’s target.
This new data point challenges the hawkish stance the Reserve Bank of Australia has held since late 2025. Given that the RBA’s cash rate has been held at 4.60% for the past two meetings, this soft inflation print reduces the probability of any further rate hikes this year. The market will now begin to question when the RBA might pivot towards easing.
For interest rate traders, this means we should anticipate a rally in short-term interest rate futures and government bonds. The market is likely to price out the small chance of a hike that was lingering for the second half of the year. We saw a similar dynamic in mid-2024 when soft data led to a rally in bond futures as hike expectations were abandoned.
In the currency markets, this is a bearish signal for the Australian dollar. A less hawkish RBA reduces the yield advantage of the AUD, especially against the US dollar where the Fed’s path remains uncertain. We should consider buying AUD/USD put options to position for a potential slide towards the 0.6400 level we saw in late 2025.
For the ASX 200, the prospect of peaking interest rates is a significant tailwind. Tech and growth-related stocks, which have been under pressure from high borrowing costs, should see some relief. We can look at buying call options on the index, as equities often front-run central bank policy pivots, much like the rally we witnessed in early 2025.
We must also watch implied volatility, which has been elevated due to the RBA’s uncertain policy path. If this inflation data is seen as the start of a clear trend, volatility in AUD options and rate swaptions may begin to fall. Selling volatility through strategies like short strangles could become an attractive proposition if we believe the RBA’s next move is now firmly on hold.
