Asia-Pacific FX news summary: AUD rises following a hawkish RBA rate increase

Overview

The RBA has increased the cash rate to 3.85%, citing renewed inflation concerns and capacity constraints. Future moves will depend on economic data.

The Australian dollar surged, as the RBA’s forecast indicates the possibility of nearly two more rate hikes this year.

Iran has indicated a willingness to reduce its nuclear activities, boosting market sentiment and related stock prices.

President Trump has revealed plans for critical mineral reserves aimed at enhancing supply chain security, utilizing both public and private funding.

Japan has downplayed discussions around foreign exchange interventions, emphasizing cooperation with the US instead.

Australia’s housing approvals fell sharply, highlighting sensitivity to rising interest rates in the housing market.

The Indian rupee strengthened following President Trump’s decision to lower tariffs on imports from India.

The RBA has raised the cash rate to 3.85%, which many anticipated. They pointed to capacity pressures and notable inflation spikes in late 2025, expressing concerns that inflation may remain above target for a while. While no specific commitments to further actions were made, the outlook suggests increased chances of additional hikes. This news caused the Australian dollar to rise, although officials cautioned that future changes will rely on data.

On the geopolitical front, Iran has told the US it might suspend its nuclear program in a bid to reduce tensions in the Middle East. There’s talk of reviving a proposal for a regional nuclear power consortium, and this general optimism has positively affected related stocks.

Moreover, Ali Larijani from Iran’s National Security Council met with President Putin and hinted at potential discussions regarding transferring enriched uranium stockpiles to Russia, adhering to a prior arrangement from the 2015 nuclear agreement.

In domestic news, President Trump announced the establishment of significant mineral reserves designed to safeguard against supply chain disruptions. This initiative includes about $10 billion in managing imports and exports, alongside around $2 billion from private investment, focusing on essential materials.

In currency discussions, Japan’s Finance Minister Katayama refrained from confirming any interventions in the foreign exchange market. He highlighted the ongoing cooperation with US officials while dismissing claims of promoting a weaker yen.

Looking domestically, Australia saw a noteworthy 14.9% decrease in housing approvals in December, largely due to shifts in medium-density housing. Private sector housing approvals plummeted nearly 30%, reversing prior gains seen in November as rising interest rates threaten further vulnerability in this sector.

The market has seen precious metals and stocks from Japan and Korea performing well. Finally, the Indian rupee strengthened significantly after Trump reduced tariffs on goods from India, generating positive sentiment for Indian investments.