Australia’s TD-MI Inflation Gauge rose to 4.3% year on year in March. It was 3.6% in the previous reading.
The increase was 0.7 percentage points from the prior figure. The data refers to March.
Inflation Reacceleration And RBA Implications
The sharp rise in this inflation gauge to 4.3% is a significant warning that price pressures are re-accelerating. This data point alone makes a more aggressive, or hawkish, stance from the Reserve Bank of Australia much more likely in the near term. We must now adjust our expectations for the RBA’s next meeting, as the chance of an interest rate hike has substantially increased.
Market pricing has already shifted to reflect this new reality. Based on overnight index swaps, the probability of a 25 basis point rate hike at the RBA’s May meeting has jumped from around 20% to over 65% in the last 24 hours. This private gauge coming in so hot suggests the official quarterly CPI data, due on April 28th, could also surprise to the upside and confirm the trend.
This change in rate expectations will likely strengthen the Australian dollar against currencies where central banks are holding steady or cutting rates. We should consider positioning through AUD/USD call options to capitalize on a rising interest rate differential. The Australian dollar has already gained half a cent against the US dollar, moving to 0.6750 since the inflation figure was released.
This environment is a stark contrast to what we saw throughout 2025. During that period, the prevailing view was that the RBA had successfully tamed inflation and would remain on hold for an extended period. The market had become comfortable with the idea of a long pause, a view which is now being challenged.
For our interest rate positions, we should anticipate further selling pressure on short-term government debt instruments.
Rates Positioning And Bond Market Impact
The price of 3-year Australian government bond futures has fallen, pushing the yield up by 15 basis points to 3.95% on this news. We should look to short these futures contracts or use put options to position for higher yields in the coming weeks.
