First rate hike in 2026? The Australian central bank may take a contrarian action next Tuesday, sparking a bullish surge in the Australian Dollar.

As the market's expectation of a rate hike by the Reserve Bank of Australia continues to rise for next Tuesday, forex traders are significantly increasing their long positions on the Australian dollar in the options market. According to the latest data from the Chicago Mercantile Exchange Group Options Central Limit Order Book, the trading volume of Australian dollar call options reached three times that of put options on Thursday. Earlier this week, a key change was shown in the risk reversal indicator - the premium paid for betting on the Australian dollar to rise was significantly higher than the premium paid for betting on it to fall, the first time such a situation has occurred since 2018. This indicator, as a core observation tool in the options market, is mainly used to quantify the relative pricing levels of call options and put options. "Given the recent strong employment and inflation data, the probability of a rate hike by the Reserve Bank of Australia has further increased, driving up demand for the Australian dollar against the US dollar," said Mayank Navaraka, Global Head of FX and Precious Metals Options at ANZ Banking Group. He also noted that investors have shown strong interest in option structures that can benefit from a rise in the Australian dollar against the New Zealand dollar. Driven by high inflation, the Australian dollar exchange rate is approaching its highest point since 2023, and the Reserve Bank of Australia is expected to be the first major central bank to raise rates this year. Pricing in the swap market shows a 71% probability of a 25 basis point rate hike by the Reserve Bank of Australia on Tuesday. After US President Trump stated that he is "not worried about the devaluation of the US dollar," the Australian dollar has ranked among the top three performing currencies in the G10 this year. Additionally, rising commodity prices have provided additional support for the Australian dollar. "The Australian dollar has multiple support factors," said Chad Franovich, Chief FX Strategist at The Pacific Bank. Given the current backdrop, he believes that the Australian dollar will likely reach 75 US cents against the dollar within a six-month timeframe. As of the time of writing, the Australian dollar had fallen by 0.7% against the US dollar to 70 US cents, after rising for nine consecutive trading days.