However, analysts at TD Securities characterised the accompanying messaging as dovish, with the board signalling a willingness to pause and assess conditions before moving again. The RBA framed the Middle East conflict as an income shock, and noted that risks to both inflation and growth were now more evenly balanced, a shift from the more hawkish posture that had prevailed in recent months.
TD Securities said it would maintain its call for a further hike only if second-quarter trimmed mean inflation came in above the RBA’s own forecast for that period. Should that condition be met, the bank expects the board to act in August, bringing the terminal rate to 4.60%.
For the Australian dollar, the implications of the RBA’s shift are seen as broadly negative in the near term. TD Securities argued that a sustained move back above 0.72 against the US dollar would depend on a broader weakening of the greenback, a scenario the bank viewed as difficult to achieve given persistent hawkish signals from within the Federal Open Market Committee and continued resilience in US economic data. Until those conditions change, the Australian dollar is likely to face a ceiling.
On rates, TD Securities flagged that the RBA’s more balanced messaging introduced meaningful risk to its short five-year Australian government bond position, held within the bank’s model portfolio. Front-end bonds were described as fairly priced, while the long end was characterised as vulnerable to moves driven by offshore markets rather than domestic factors. The bank also anticipated compression in AU-US yield spreads should the Australian growth outlook continue to deteriorate in the months ahead.
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August meeting is on the 10th and 11th:
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The dovish pivot in RBA messaging, combined with the income shock narrative from the Middle East, reduces the probability of a June move and could weigh on AUD in the near term, particularly given TD Securities’ view that recapturing levels above 0.72 against the USD will require broader dollar weakness that may not materialise. Hawkish dissents within the FOMC and resilient US data are seen keeping the greenback supported, limiting the upside for the Australian dollar even if domestic data cooperates
