AUD: RBA Maintains Hawkish Stance on Inflation – BNY

Intro: BNY strategist Geoff Yu's latest report states that the RBA remains vigilant on inflation risks, with Deputy Governor Andrew Hauser indicating a rate hike cannot be ruled out, providing support for the Australian dollar.

**Inflation Concerns Dominate Policy Stance**

The RBA's hawkish position stems from persistent inflationary pressures. Reports show Australia's inflation rate has not been within the midpoint of its 2%-3% target range for five consecutive years, with underlying inflation not expected to fall to the 2.5% midpoint until early 2028—slower than previously anticipated. In this context, Deputy Governor Hauser reiterated that rate hikes remain an option, highlighting the central bank's priority on price stability.

**External Risks Complicate Policy Outlook**

Geopolitical tensions have become the biggest uncertainty facing the RBA. Market reports indicate that tensions from the US-Iran conflict are threatening global energy supply chains, with rising oil prices and potential blockade risks in the Strait of Hormuz making it difficult for inflation expectations to cool quickly. Meanwhile, weak productivity growth in China is also limiting Australia's potential economic growth, leaving macroeconomic policy in a difficult balancing act.

**FX Market Reaction and Near-Term Outlook**

AUD/USD is currently trading around 0.71219, in a range-bound pattern. The pair has repeatedly failed to break above the 0.71 resistance level while finding support around 0.6950. BNY Chief Economist Brendan Rynne noted that although the RBA is attempting to balance inflation control with employment support, price stability remains its primary objective, and further rate hikes cannot be ruled out in the coming months. This expectation limits the downside for the Australian dollar, though dollar strength is also capping momentum for a break above the 0.72 resistance level.