RBA Raises Rates and Signals More Hikes as AUD Strengthens

Key Highlight

• The Australian dollar gains ground following a more hawkish policy signal

• French inflation falls to its lowest level in five years

Market Recap

US economic data was the main driver in markets today, with the latest ISM manufacturing survey coming in much stronger than expected. The headline reading rose to its highest level since August 2022, signalling renewed momentum in the manufacturing sector. New orders showed notable improvement, while employment also recovered from recent weakness, pointing to firmer underlying activity.

In response, the US dollar strengthened as government bond yields moved higher. This prompted some investors to reassess positions following the dollar’s recent softness. Rather than marking a full change in trend, the data served as a reminder that the US economy remains resilient and capable of delivering upside surprises — something markets will need to factor into expectations around interest rates going forward.

Market Overview:

The Reserve Bank of Australia stood apart from other major central banks today after raising 25bp rate hike and signalling that further tightening is likely. Markets have responded by pushing the Australian dollar higher, with expectations now building for additional rate increases later this year. As a result, GBP/AUD has fallen to its lowest level since December 2024, with markets now pricing in an additional 40bp worth of hikes for this year, reflecting the widening policy gap between the UK and Australia.

In Europe, inflation data from France surprised on the downside. January’s headline inflation dropped to a five-year low and remained comfortably below the European Central Bank’s 2% target. Lower energy and manufactured goods prices were the main contributors, reinforcing the broader trend of easing price pressures across the eurozone.

UK consumer data also pointed to softer inflation, with grocery price growth eased to 4% over the four weeks to 25th January — the weakest reading since April. However, the figures suggest households remain under strain, as spending continues to shift toward own-brand products and discounts. While inflation is easing, everyday costs are still rising faster than overall UK CPI.

Finally, the US JOLTS labour market report scheduled for today has been postponed due to the ongoing partial government shutdown.

3rd February 2026

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