Is the Australian dollar's rise against the Hong Kong dollar unstoppable? Diverging central bank policies are the key.

The AUD/HKD exchange rate attracts regional investors’ attention. As expectations for the Reserve Bank of Australia to raise interest rates increase, combined with the ongoing easing cycle of the U.S. Federal Reserve, the Australian dollar’s strength against the U.S. dollar and Hong Kong dollar continues to grow. This reflects a divergence in policy directions between the two major economies, opening new upside potential for AUD/HKD.

Rising Rate Hike Expectations Drive AUD to New Highs

The AUD/USD has performed remarkably in recent trading sessions. Recent data shows the Australian dollar has gained 0.6%, reaching a new high since October 2024. The consecutive days of appreciation indicate market optimism about Australia’s economy. Expectations of rate hikes have become the main driver behind the AUD’s appreciation.

Australia’s solid economic fundamentals lay the groundwork for rate hike expectations. Corpay currency strategist Peter Dragicevich noted that Australia’s economy remains stable, with persistent inflation pressures, meaning the RBA has re-entered the rate hike consideration. Meanwhile, the Fed is in a rate-cut cycle, and the divergence in policies has widened the interest rate differential, supporting the medium-term appreciation of AUD against HKD and other currencies.

Strong Employment Data Boosts Hike Expectations

Recent employment figures exceeded expectations, further reinforcing market bets on RBA rate hikes. In December, employment increased by 65,000 jobs, well above the expected 30,000. The unemployment rate unexpectedly fell to 4.1%, below the forecast of 4.4%. These data points demonstrate the resilience of Australia’s labor market, providing strong support for rate hikes.

Several authoritative institutions have made predictions about the timing of rate increases. Citibank maintains its previous stance, expecting the RBA to raise rates in February and May. Commonwealth Bank of Australia and National Australia Bank also forecast a 25 basis point hike at the February meeting. Robust economic data provide a solid fundamental basis for the rate hike outlook.

Policy Divergence Expands Interest Rate Differentials, AUD/HKD to Break New Highs Before Year-End

Corpay strategists further analyze that policy divergence between Australia and the U.S., along with widening interest rate differentials, could provide medium-term support for AUD/HKD. Based on this logic, AUD/USD could rise to 0.70 before year-end, further boosting AUD/HKD appreciation potential. The expanding policy interest rate gap creates structural opportunities for the AUD to strengthen.

Market Skepticism: Only 25% Chance of Rate Hike

Despite optimistic forecasts from many institutions, market perceptions remain divided. According to interest rate data, the market currently assigns only a 25% probability to the RBA raising rates in February, with a 75% chance of holding rates steady. This reflects cautious market sentiment regarding the central bank’s pace.

HSBC economist Paul Bloxham represents a segment of market opinion, expecting the RBA to pause rate hikes at the February meeting to observe inflation trends further. The divergence in expectations about the timing of rate hikes suggests that AUD/HKD could experience increased volatility, and investors should closely monitor central bank signals.

In this context, while the AUD/HKD upward trend is supported, the final confirmation of rate hike policies remains subject to official statements. Market expectations may still adjust, and the future movement of the AUD will depend on the interaction between policy outlooks and economic data to find a new balance.