Hawkish Reserve Bank of Australia Update Brings Forward Rate Hike Expectations, Says MUFG

06:09 AM EST, 12/09/2025 (MT Newswires) -- The Australian dollar (AUD) strengthened overnight Monday following the Reserve Bank of Australia's latest policy meeting, said MUFG.

It helped lift the AUD/USD rate to within touching distance of 0.6650 and extended the Australian dollar's position as the best-performing G10 currency so far this month, wrote the bank in a note to clients.

The Australian dollar has been boosted by hawkish comments from RBA Governor Michele Bullock, who stated "I don't think there are interest rate cuts on the horizon for the foreseeable future." Then added "the question is, is it just an extended hold from here or is it the possibility of a rate rise. I couldn't put a probability on those but I think they're the two things that the board will be looking closely at coming into the new year."

The comments send a clear signal that the RBA's easing cycle has come to an end, and will encourage market expectations that the central bank's next policy move is more likely to be a rate hike than a cut, stated MUFG. The RBA had already moved to price in a rate hike by the end of next year before this week's policy meeting, and has since moved to bring forward the potential timing of a hike to as early as March or May.

A faster shift to RBA hikes next year would reinforce the bank's bullish outlook for the Australian dollar, pointed out the bank. The hawkish change in tone from the RBA reflects concerns over the risk of a broad-based pick-up in inflation.

Governor Bullock noted that recent data suggests there may be more tightness in the economy. If inflation pressures persist, it would raise questions over the need for a rate hike, with the RBA board already uncomfortable with the level of inflation, added MUFG.

The RBA board now judges that inflation risks are tilted to the upside. Ultimately, whether the RBA leaves rates on hold or hikes rates next year will depend on the incoming economic data, but the RBA is already preparing the grounds to justify hiking rates, noted the bank.

The updated statement signaled that the RBA will "take a little longer to assess the persistence of inflationary pressures." A comment that could be interpreted as the RBA being in a position to raise rates by say Q2 of next year if they judge inflation pressures as persistent, according to MUFG.

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