Australian shares settled higher on Tuesday, driven by gains in commodity stocks, as investor appetite for risk improved after the country's central bank noted signs of easing inflation.

The benchmark S&P/ASX 200 rose 0.8 per cent to 7,489.1, its highest close since February 9, also tracking a Wall Street rally as traders awaited a slew of US data, including the November core personal consumption expenditure index report on Friday.

Minutes of the Reserve Bank of Australia's December policy meeting showed that the central bank considered raising interest rates for a second consecutive month, but decided there were enough encouraging signs on inflation to pause for more data.

US stocks gained ground overnight as investors parsed mounting expectations of Fed rate cuts in the coming year.

In Sydney, miners gained 0.6 per cent on improving iron ore prices. BHP Group, Rio Tinto and Fortescue rose between 0.6 per cent and 1.1 per cent.

"Sellers are gone and with bid activity continuing, it is a positive environment," said Henry Jennings, a senior market analyst at Marcus Today.

"We may see a resources rally continue. Lithium and oil are my two sectors to rebound in 2024," Henry predicted for the first quarter of 2024.

Energy stocks rose 1 per cent, as oil prices extended gains with Red Sea attacks disrupting global supply chains. Woodside was up 1.7 per cent, while Santos closed flat.

Gold stocks climbed 0.7 per cent, with Northern Star Resources up 1.4 per cent. Technology stocks closed 1.1 per cent higher, with Block's Australian shares and Xero up 0.3 per cent and 1.6 per cent, respectively.

Financials rose 0.8 per cent, with National Australia Bank , Westpac and Commonwealth Bank of Australia up between 0.5 per cent and 0.8 per cent.

In New Zealand, the benchmark S&P/NZX 50 index rose 0.5 per cent to 11,617.37.