Australia’s Wage Price Index rose 3.4% year-on-year in the fourth quarter. This was unchanged from the previous reading.
The data indicates that annual wage growth held steady through 4Q. No change was reported in the year-on-year rate at 3.4%.
Wage Growth Holds Steady
Looking back to early 2025, we saw the wage price index data for the fourth quarter of 2024 come in flat at 3.4%. This figure, along with other cooling indicators at the time, signaled that the Reserve Bank of Australia’s rate hikes were finally taking hold. It marked a key point where the market narrative began shifting away from further tightening.
Fast forward to today, February 18, 2026, and the situation has evolved as we anticipated. The latest official data for the fourth quarter of 2025 showed the annual inflation rate fell to 2.8%, re-entering the RBA’s target band for the first time in years. Consequently, the market is no longer debating hikes but is now pricing in at least a 75% chance of a rate cut by the August 2026 meeting.
For traders focused on the Aussie dollar, this outlook suggests continued weakness against currencies with more hawkish central banks. We are seeing increased interest in buying AUD/USD put options with expiries in the third quarter to capitalize on this expected policy divergence. Implied volatility on the pair is likely to rise heading into the RBA’s mid-year meetings, making long volatility strategies attractive.
Conversely, the prospect of lower borrowing costs is providing a tailwind for domestic equities and bonds. Traders should consider long positions in ASX 200 index futures, as rate-sensitive sectors like technology and real estate investment trusts could lead the gains. Australian 3-year government bond futures have already seen a significant rally, a trend we expect to continue as the first cut gets closer.
The main risk to this strategy is a surprise uptick in the upcoming monthly CPI indicator or an unexpectedly strong jobs report, which could push the RBA’s timeline back. Therefore, using options to define risk, such as buying call spreads on the ASX 200 instead of outright futures, could be a prudent approach. We must watch the next labour force statistics for any change in underlying economic strength.
