Australia Interest Rates Set to Rise Amid China's Economic Shift

China's actions are raising eyebrows as it continues to sell US bonds and buy gold. According to the Wall Street Journal, China has been helping Iran fight against the US by selling dual-use electronics equipment worth about $1.3 billion this year alone.

The sale of US bonds by China has seen its holdings decrease by around $436 billion since 2021, with a significant drop of $26 billion in June. This shift towards gold and other countries' debt is likely driven by concerns over the value of the dollar and potential economic instability.

Meanwhile, interest rates are set to rise in Australia as the Reserve Bank confirms it will increase the cash rate on Tuesday. The market odds for a September hike now stand at 96%, with a second expected in February and a third by August next year.

The impact of rising interest rates on the Australian economy is uncertain, but experts warn that it could exacerbate the economic consequences of reduced population growth due to lower net overseas migration. The government's target of reducing NOM from 306,000 in 2025-26 to 225,000 in 2027-28 may be challenging to achieve, as former chief economist Mark Cully notes that a cap on migration is 'basically impossible'.

A comparison with Canada suggests that rate hikes could have significant economic implications. The Bank of Canada cut rates nine times between June 2024 and October 2025, but the Reserve Bank of Australia has already removed all its cuts in 2026 and may implement further hikes.