What is central bank policy divergence?

Policy divergence occurs when two central banks have different monetary policy stances. For example, if the RBA is hawkish (tightening) while the Fed is dovish (easing), this creates favorable conditions for AUDUSD to rise as interest rate differentials favor the AUD.

How are macro trading signals generated?

Our signals are generated by analyzing central bank statements, minutes, and speeches to assess their hawkish or dovish stance. We then compare economic data against CB rhetoric to detect potential policy pivots. The resulting outlook considers policy divergence, upcoming events, and technical factors.

What currency pairs are covered?

We currently cover three major pairs: AUDUSD (RBA vs Fed), AUDSGD (RBA vs MAS), and EURUSD (ECB vs Fed). These pairs are chosen for their liquidity and clear central bank policy dynamics.

How often are signals updated?

Signals are updated after each central bank meeting or significant policy announcement. Economic data releases may also trigger updates if they materially change the outlook.

What does divergence level mean?

Divergence level indicates how much a central bank's stated stance differs from what economic data suggests. High divergence means the CB may be forced to pivot soon. Low divergence means their stance is aligned with economic reality.

Macro Trading Signals

Trade currency pairs based on central bank policy divergence. Our analysis compares RBA, Fed, ECB, and MAS stances to identify high-probability setups.

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Why AUD/USD May Continue Rising

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Analysis: Reserve Bank of Australia - 3 February 2026

Decision: hiked 25bp at 3.85%

Stance: hawkish (Confidence: high)

RBA hiked for the first time since late 2023, citing underlying inflation at 3.4% (above 2.5% target), stronger-than-expected private demand, and uncertainty whether financial conditions remain restrictive. Governor Bullock stated "the underlying pulse of inflation is too strong" and the Board felt not hiking would signal "tolerance for inflation above target."

Direction: hiking

Key Takeaway:

RBA stance is ALIGNED with economic data. All 6 conditions for hiking are met while 0/3 conditions for cutting are met. The hike was justified — Statement of Monetary Policy data reinforces this with unit labour costs at 5.4%, positive output gap (0.4-1.4%), and the forecast showing trimmed mean peaking at 3.7% mid-2026. Statement of Monetary Policy assumes cash rate reaches 4.2% by Dec 2026 (~35bp more hikes), with inflation not returning to 2.6% until mid-2028.

Next Action Probabilities

Hike

Probability:medium

Hold

Probability:high

Cut

Probability:none

Outcome	Probability
Hike	medium
Hold	high
Cut	none

Inflation Assessment

Trimmed Mean CPI

Value	Target
3.4%	2-3%

Above target, accelerating. Statement of Monetary Policy projects peak 3.7% mid-2026

Headline CPI (monthly)

Value	Target
3.8%	-

Volatile but elevated. Statement of Monetary Policy forecasts headline reaching 4.2% mid-2026

Trend

Value	Target
rising	-

Concern: high

Measure	Value	Target	Status
Trimmed Mean CPI	3.4%	2-3%	Above target, accelerating. Statement of Monetary Policy projects peak 3.7% mid-2026
Headline CPI (monthly)	3.8%	-	Volatile but elevated. Statement of Monetary Policy forecasts headline reaching 4.2% mid-2026
Trend	rising	-	Concern: high

What Changed (Dec → Feb)

Stance

Dec:Hawkish

Feb:Hawkish

Change:→ Same, but acted on it

Inflation view

Dec:"Signs of more broadly based pick-up"

Feb:"Underlying pulse is too strong"

Change:↑ Hardened significantly

Monthly CPI trajectory

Dec:3.0% → 3.6% → 3.8%

Feb:3.8% → 3.4% → 3.8%

Change:→ Volatile but elevated

Growth view

Dec:"Private demand recovery strengthening"

Feb:"Private demand much stronger than forecasting"

Change:↑ More concerned about excess demand

Labour market

Dec:"A little tight"

Feb:"Remained lower than thought"

Change:↑ Tighter than expected

Financial conditions

Dec:Implicitly restrictive

Feb:"Uncertain whether they remain restrictive overall"

Change:↓ Concern conditions too loose

Forward guidance

Dec:"Circumstances in which hike might need to be considered"

Feb:"I will not give forward guidance" - no tightening cycle commitment

Change:↓ Less hawkish than feared

Dimension	December	February	Change
Stance	Hawkish	Hawkish	→ Same, but acted on it
Inflation view	"Signs of more broadly based pick-up"	"Underlying pulse is too strong"	↑ Hardened significantly
Monthly CPI trajectory	3.0% → 3.6% → 3.8%	3.8% → 3.4% → 3.8%	→ Volatile but elevated
Growth view	"Private demand recovery strengthening"	"Private demand much stronger than forecasting"	↑ More concerned about excess demand
Labour market	"A little tight"	"Remained lower than thought"	↑ Tighter than expected
Financial conditions	Implicitly restrictive	"Uncertain whether they remain restrictive overall"	↓ Concern conditions too loose
Forward guidance	"Circumstances in which hike might need to be considered"	"I will not give forward guidance" - no tightening cycle commitment	↓ Less hawkish than feared

Key Language Shifts:

-Added: "The underlying pulse of inflation is too strong" → New explicit language on structural inflation concern
-Modified: "signs of more broadly based pick-up" → "enough persistence to justify action" → Moved from observation to action
-Added: "financial conditions have eased" → New concern that policy transmission weakening

Key Quotes

“The underlying pulse of inflation is too strong.”

Core message - RBA views inflation as structurally elevated, not just temporary factors

“The cash rate was no longer at the right level to get inflation back to target in a reasonable timeframe.”

Explicit admission that prior rate was insufficient - policy was too loose

“Financial conditions have eased, and it is uncertain now whether they remain restrictive overall.”

Key concern - housing recovery and credit growth suggest policy not biting as expected

“The Board felt that if it did not raise the interest rate today it would be signalling a tolerance for inflation above target.”

Credibility concern - acting to anchor inflation expectations

“I will not give forward guidance. The Board felt today was necessary.”

No commitment to tightening cycle - remains data-dependent, leaves door open to pause

Economic Data vs CB Rhetoric

Why this matters: Central banks may downplay inflation concerns in their official statements, but economic data tells the real story. If inflation consistently rises beyond the target band, policymakers will eventually be forced to act — regardless of their rhetoric. Comparing what they say versus what the data shows helps anticipate policy pivots before they happen.

Trimmed Mean CPIQuarterly

Older	Prev	Latest	Trend	Target
2.7%	3.0%	3.4%	↑↑	2-3%

Above target, accelerating. Statement of Monetary Policy projects peak 3.7% mid-2026

Headline CPIMonthly

Older	Prev	Latest	Trend	Target
3.8%	3.4%	3.8%	↓↑	-

Volatile but elevated. Statement of Monetary Policy forecasts headline reaching 4.2% mid-2026

UnemploymentMonthly

Older	Prev	Latest	Trend	Target
4.32%	4.10%	4.08%	↓↓	~4.5%

Tight, tightening further. Jan 2026 at 4.08%. Statement of Monetary Policy projects gradual rise to 4.6% by mid-2028

Capacity UtilisationMonthly

Older	Prev	Latest	Trend	Target
83.4%	83.6%	83.2%	↑↓	<82%

Above historical average. Statement of Monetary Policy: economy has positive output gap (0.4%-1.4% per RBA models)

WPIQuarterly

Older	Prev	Latest	Trend	Target
3.4%	3.4%	3.4%	→→	~3%

Sticky at elevated level. Private sector 3.2% easing but public 3.8% offsetting

Unit Labour CostsQuarterly

Older	Prev	Latest	Trend	Target
-	-	5.4%	↑	~2%

Very elevated. Statement of Monetary Policy: consistent with upward pressure from labour market tightness and weak productivity

Average Earnings (AENA)Quarterly

Older	Prev	Latest	Trend	Target
-	-	5.9%	↑	~3%

Well above target. Bolstered by Superannuation Guarantee increase but still signals strong wage pressure

GDP GrowthQuarterly

Older	Prev	Latest	Trend	Target
-	-	2.3%	-	~2%

Above potential. Statement of Monetary Policy: GDP above potential through most of 2026, moderating to 1.6% by 2027-28

Indicator	Freq	Older	Prev	Latest	Trend	Target	Assessment
Trimmed Mean CPI	Quarterly	2.7%	3.0%	3.4%	↑↑	2-3%	Above target, accelerating. Statement of Monetary Policy projects peak 3.7% mid-2026
Headline CPI	Monthly	3.8%	3.4%	3.8%	↓↑	-	Volatile but elevated. Statement of Monetary Policy forecasts headline reaching 4.2% mid-2026
Unemployment	Monthly	4.32%	4.10%	4.08%	↓↓	~4.5%	Tight, tightening further. Jan 2026 at 4.08%. Statement of Monetary Policy projects gradual rise to 4.6% by mid-2028
Capacity Utilisation	Monthly	83.4%	83.6%	83.2%	↑↓	<82%	Above historical average. Statement of Monetary Policy: economy has positive output gap (0.4%-1.4% per RBA models)
WPI	Quarterly	3.4%	3.4%	3.4%	→→	~3%	Sticky at elevated level. Private sector 3.2% easing but public 3.8% offsetting
Unit Labour Costs	Quarterly	-	-	5.4%	↑	~2%	Very elevated. Statement of Monetary Policy: consistent with upward pressure from labour market tightness and weak productivity
Average Earnings (AENA)	Quarterly	-	-	5.9%	↑	~3%	Well above target. Bolstered by Superannuation Guarantee increase but still signals strong wage pressure
GDP Growth	Quarterly	-	-	2.3%	-	~2%	Above potential. Statement of Monetary Policy: GDP above potential through most of 2026, moderating to 1.6% by 2027-28

Trend Legend: ↑↑ Accelerating up, ↓↓ Accelerating down, ↑↓ Peaked then fell, ↓↑ Bottomed then rose, →→ Stable

Economic Data Divergence

Divergence Level: LOW (RBA stance is ALIGNED with economic data. All 6 conditions for hiking are met while 0/3 conditions for cutting are met. The hike was justified — Statement of Monetary Policy data reinforces this with unit labour costs at 5.4%, positive output gap (0.4-1.4%), and the forecast showing trimmed mean peaking at 3.7% mid-2026. Statement of Monetary Policy assumes cash rate reaches 4.2% by Dec 2026 (~35bp more hikes), with inflation not returning to 2.6% until mid-2028.)

Conditions for Hike (6/6 met)

Inflation persistentMET

Trimmed mean 2.7% → 3.0% → 3.4%, two consecutive high quarters. Statement of Monetary Policy: broad-based across goods and services. New dwelling inflation reaccelerating (0.9% → 2.5%). Rent CPI 4.0%

Excess demandMET

GDP 2.3% vs ~2% potential. RBA output gap models show +0.4% to +1.4%. Private demand much stronger than forecast. Business investment +3.4% in Sep Q

Tight labour marketMET

Unemployment 4.08% (Jan 2026) vs ~4.5% NAIRU. Underemployment 5.9% (low). RBA updated full employment framework confirms tightness. Liaison: skills shortages persistent

Capacity constraintsMET

NAB capacity utilisation 83.2-83.6% (above historical avg). RBA output gap +0.4% to +1.4%. Construction and wholesale sectors notable increases. Data centre construction exceptionally robust

Financial conditions looseMET

Statement of Monetary Policy: credit growth exceeds post-GFC averages. Housing credit growing faster than incomes. Business debt at pre-pandemic GDP ratios. Market shifted from pricing 1 cut to 2 hikes. AUD +5% TWI since Nov partially offsets

Wage/cost pressuresMET

WPI 3.4%. Unit labour costs 5.4% YoY. AENA 5.9%. Statement of Monetary Policy: years of weak/no productivity growth is a big part of the story. Liaison: builders removing discounts, fewer firms reporting margin compression

Condition	Status	Trajectory
Inflation persistent	MET	Trimmed mean 2.7% → 3.0% → 3.4%, two consecutive high quarters. Statement of Monetary Policy: broad-based across goods and services. New dwelling inflation reaccelerating (0.9% → 2.5%). Rent CPI 4.0%
Excess demand	MET	GDP 2.3% vs ~2% potential. RBA output gap models show +0.4% to +1.4%. Private demand much stronger than forecast. Business investment +3.4% in Sep Q
Tight labour market	MET	Unemployment 4.08% (Jan 2026) vs ~4.5% NAIRU. Underemployment 5.9% (low). RBA updated full employment framework confirms tightness. Liaison: skills shortages persistent
Capacity constraints	MET	NAB capacity utilisation 83.2-83.6% (above historical avg). RBA output gap +0.4% to +1.4%. Construction and wholesale sectors notable increases. Data centre construction exceptionally robust
Financial conditions loose	MET	Statement of Monetary Policy: credit growth exceeds post-GFC averages. Housing credit growing faster than incomes. Business debt at pre-pandemic GDP ratios. Market shifted from pricing 1 cut to 2 hikes. AUD +5% TWI since Nov partially offsets
Wage/cost pressures	MET	WPI 3.4%. Unit labour costs 5.4% YoY. AENA 5.9%. Statement of Monetary Policy: years of weak/no productivity growth is a big part of the story. Liaison: builders removing discounts, fewer firms reporting margin compression

Conditions for Cut (0/3 met)

Inflation at targetNOT MET

2.7% → 3.0% → 3.4% (trimmed mean). Statement of Monetary Policy projects peak 3.7% mid-2026, returning to 2.6% only by mid-2028

Labour market slackNOT MET

4.32% → 4.10% → 4.08% (unemployment). Statement of Monetary Policy projects gradual rise to 4.6% by mid-2028 but currently well below NAIRU

Wage pressures containedNOT MET

WPI 3.4% stable, but unit labour costs 5.4% and AENA 5.9% signal persistent pressure

Condition	Status	Trajectory
Inflation at target	NOT MET	2.7% → 3.0% → 3.4% (trimmed mean). Statement of Monetary Policy projects peak 3.7% mid-2026, returning to 2.6% only by mid-2028
Labour market slack	NOT MET	4.32% → 4.10% → 4.08% (unemployment). Statement of Monetary Policy projects gradual rise to 4.6% by mid-2028 but currently well below NAIRU
Wage pressures contained	NOT MET	WPI 3.4% stable, but unit labour costs 5.4% and AENA 5.9% signal persistent pressure

Data to Watch

•March quarter CPI (Q1 2026) - critical test of whether hike is biting
•Monthly CPI indicator for interim inflation signals
•Labour market - will unemployment rise with higher rates? Currently 4.08%
•Housing market activity and prices - response to rate hike (currently +8.5% YoY)
•Credit growth trajectory - currently exceeding post-GFC averages
•Unit labour costs trend - 5.4% far above sustainable level
•China growth target (March) - upside risk if supporting 5%
•Trade policy uncertainty and tariff impacts

Policy Evolution Summary

The RBA executed the hawkish pivot it signalled in December. The December quarter CPI (underlying 3.4%) confirmed inflation persistence, private demand continued to surprise upside, and the unemployment drop to 4.1% eliminated hope of cooling. Crucially, the Board now questions whether financial conditions are even restrictive - housing and credit growth suggest policy is not biting. This was a credibility hike: not hiking would signal tolerance for above-target inflation. However, Bullock explicitly refused forward guidance, leaving the door open to pause if data improves.

Sources:

https://www.rba.gov.au/media-releases/2026/mr-26-03.html (2026-02-03)
https://www.rba.gov.au/publications/smp/2026/feb/overview.html (2026-02-03)

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How Policy Divergence Creates Trading Opportunities

Currency pairs move based on the relative monetary policy of two central banks. When one CB is hawkish and the other is dovish, directional moves become more likely.

Analyze Central Bank Stance

We read every CB statement and minutes, extracting key quotes and assessing the hawkish/dovish tilt. We also compare rhetoric vs economic data to detect potential pivots.

Compare Policy Divergence

For each currency pair, we compare the two central banks. If RBA is hawkish and Fed is dovish, AUDUSD tends to rise as rate differentials favor AUD.

Generate Trading Signal

Based on policy divergence, economic data, and upcoming events, we generate a bullish, bearish, or neutral outlook with specific scenarios and key dates to watch.

Understanding Divergence Detection

Conditions for Rate Cut

Inflation sustainably at target
Labour market slack (rising unemployment)
Wage pressures contained

Conditions for Rate Hike

Inflation persistent and broad-based
Excess demand / tight labour market
Capacity constraints binding (>80% utilization)

When a CB's stated stance diverges from what economic data suggests, we flag this as "high divergence" — indicating a potential policy pivot ahead.

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