Interest rate trend shifts? Commodity currencies lead the G10 higher, traders bet that the global cycle may return to rate hikes

BlockBeats News, February 25 — Signs of a shift in the foreign exchange market have emerged, with the Australian dollar, Norwegian krone, and New Zealand dollar rising approximately 6%, 5%, and 4% respectively this year, making them the best performers among G10 currencies. Traders are re-pricing global interest rate paths, betting that major economies may end their rate-cutting cycles and refocus on combating inflation.

The Reserve Bank of Australia has begun a new rate hike cycle this month. Recent data shows its preferred “trimmed mean” inflation rate has risen to 3.4%, reinforcing market expectations of another rate increase in May. Norway’s rates are priced to rise in the first half of the year due to unexpectedly rising inflation. The New Zealand dollar also benefits from market bets on rate hikes in the coming months. Supported by rising commodity prices such as oil and copper, the three major “commodity currencies” have strengthened simultaneously.

Strategists note that with Australian interest rates surpassing those of the U.S. for the first time since 2017, combined with a weakening dollar and increased capital diversification needs, funds are flowing into economies with relatively stable fiscal conditions and commodity exposure. Meanwhile, although markets still expect the Federal Reserve to cut rates two to three times this year, some institutions believe it may hold steady all year. The risk of inflation remaining above the 2% target persists, fueling discussions about a “new hawkish era.”