AUD/USD: RBA rate guidance shift and sharp decline in price of iron ore weighs on the Aussie – MUFG

The Australian Dollar (AUD) has weakened following the RBA’s latest policy meeting. Economists at MUFG Bank analyze Aussie’s outlook.

RBA to begin cutting rates during the second half of this year

The RBA left their policy rate unchanged for the third consecutive meeting at 4.35%. However, the RBA softened their guidance over the likelihood of further rate hikes in the updated policy statement. 

The updated guidance from the RBA has made us more confident that the RBA has reached the end of their rate hike cycle although the risk of one final hike can’t be completely ruled out. 

We expect the RBA to begin cutting rates during the second half of this year. Unlike other major central banks like the Fed, the RBA is expected to be slower to lower rates. 

In contrast, one less supportive development for the Aussie has been the recent sharp decline in the price of iron ore which has continued to plunge so far this month. After peaking at the start of this year, the price of iron ore has since declined by almost 30% which continues to pose downside risks for the Aussie in the near term.