Interest Rate Winds Shift? Commodity Currencies Lead G10 Higher as Traders Bet on Global Return to Rate Hikes

February 25th — The forex market hit a turning point Tuesday, with the Australian Dollar (AUD), Norwegian Krone (NOK), and New Zealand Dollar (NZD) leading G10 currencies year-to-date—up roughly 6%, 5%, and 4% respectively. Traders are reassessing the global interest rate trajectory, betting major economies will either wrap up rate-cut cycles or refocus on taming inflation. The Reserve Bank of Australia (RBA) kicked off a new round of rate hikes this month, and its preferred trimmed-mean inflation gauge rose to 3.4%—reinforcing market bets on another hike in May. Norway’s markets are pricing in a first-half rate hike amid unexpectedly high inflation, while the Kiwi is also benefiting from wagers on upcoming rate increases. The three top “commodity currencies” strengthened in tandem, boosted by gains in key commodities like oil and copper. Strategists note that with Australian rates now above U.S. rates for the first time since 2017, plus a weaker greenback and growing demand for diversified capital allocation, funds are flowing into economies with solid fiscal positions and commodity exposure. While markets still expect the Fed to cut rates 2-3 times this year, some institutions argue it could hold steady all year. Lingering risks of inflation staying above the 2% target are also fueling growing talk of a “new hawkish era.”