AUD little changed as RBA's hold comes with a side of hawkishness

AUD has moved largely sideways this week, despite a modest sell-offpost the RBA decision, which was viewed as relatively dovish. That saidthe currency did find support after the RBA governor, Michelle Bullock,clearly outlined that the Board won't rule out further rate rises this year.Domestically, focus was on the RBA decision. As widely expected, theRBA kept rates on hold at 4.35% in a unanimous decision. While thestatement retained familiar language around inflation being too high, italso kept the door open to further tightening, noting the Board wouldcontinue doing what it considers necessary to bring inflation sustainablyback to target, including raising the cash rate further if upside risksmaterialise. The statement also tied the current inflation impulse toglobal oil supply disruptions, on top of existing capacity pressures in theeconomy, pressures the Bank continues to link to historically weakproductivity growth.More importantly, the RBA released updated forecasts in its Statementon Monetary Policy. As flagged in our preview last week, the Bank madesome near-term downward revisions to its inflation forecasts, thoughthere was an upward revision to headline inflation for the June quarter ofnext year, likely reflecting the cycling of the fuel excise impact from theJune 2026 quarter rather than genuine deterioration. Growth forecastswere also revised modestly higher, yet remain relatively subdued. As aresult, the unemployment rate forecast was revised up a touch, whichthe Bank attributes to a higher starting point and a slightly fasterexpected easing of capacity pressures.Globally, attention has stayed fixed on the Middle East, where oil ralliedfurther as hopes of reopening the Strait of Hormuz continue to fade. Iransaid it was nearing a shipping route agreement with Oman but reiteratedthat Washington must lift its blockade on Iranian ports and paycompensation for war damages before the strait reopens. Trump pushedback on those terms, instead demanding Iran pay compensation forcasualties across the region, an escalation that markets read as reducingthe odds of a near-term resolution and pushed oil higher again.Attacks on shipping routes near the strait have continued, adding to analready tight market that Russia's export ban has made worse. Trafficthrough Hormuz remains heavily constrained, and attention isincreasingly turning to other potential flashpoints, including alternativeexport routes through the UAE and the Red Sea, where Houthi activitycontinues to threaten Saudi Arabia's key shipping corridor.Looking ahead, focus turns to US CPI data for July due tonight. Marketsexpect headline inflation to rise 0.1% MoM (from -0.4%), with the annualrate easing to 3.4% (from 3.5%), while core inflation is expected to rise0.2% MoM (from 0%), with the annual rate slipping to 2.5% (from 2.6%).US inflation has so far shown little sign of second round effects, and thisreport is one of two remaining before the September Fed meeting, soanother mild print in line with expectations, or below, could help lock in ahold. We continue to expect the Fed to keep rates unchanged for therest of the year, despite markets still pricing one more hike by year end.