The Australian dollar is trading near its strongest level against the New Zealand dollar since early 2013, as financial markets anticipate another interest rate increase from the Reserve Bank of Australia (RBA) on Tuesday.

On Monday, November 2, the Aussie traded around NZ$1.25 and US$0.703, leaving one New Zealand dollar worth approximately 80 Australian cents. The Australian currency briefly reached NZ$1.2602 on October 28, its highest level against the Kiwi since early 2013, according to Reuters.

Australia's cash rate stands at 4.60%, following a 25-basis-point increase on September 29. The Australian Securities Exchange reported that futures markets implied a 78% probability of another quarter-point rise to 4.85%, based on October 30 trading. Reuters reported on November 2 that markets were pricing a nearly 90% chance of an increase.

Expectations of tighter monetary policy have intensified as inflation remains above the RBA's 2–3% target. Australian Bureau of Statistics figures released on October 28 showed annual consumer price inflation reached 4.3% in September, up from 4.0% in August. Trimmed mean inflation rose to 3.6%, from a revised 3.5%.

RBA Governor Michele Bullock told a Senate committee on October 28 that persistent domestic capacity pressures and higher global energy costs were likely to keep inflation elevated. She warned that inflation would probably exceed the central bank's August forecasts.

The prospect of further tightening comes amid a deepening housing downturn. Cotality reported on Monday that national home values fell 1.2% in October, their seventh consecutive monthly decline, leaving values 6.7% below their March peak.

Across the Tasman, the Reserve Bank of New Zealand surprised markets on October 28 by holding its Official Cash Rate at 2.75%, following a narrow 4–3 vote. The Kiwi dollar fell sharply after the decision, as TheZeal previously reported.

Australia's cash rate is currently 1.85 percentage points higher than New Zealand's. Another RBA increase would widen that difference to 2.10 percentage points, potentially providing further support for the Australian dollar, although much of the anticipated increase is already reflected in market pricing.

The RBA will announce its decision on Tuesday, November 3, at 2:30pm Australian Eastern Daylight Time in Sydney and Melbourne, corresponding to 4:30pm New Zealand Daylight Time. Governor Bullock's media conference is scheduled for one hour later.