ATFX: The Reserve Bank of Australia released the meeting minutes, with a 50% probability of a rate hike in the second half of the year.

ATFX: At 9:30 today, the Reserve Bank of Australia (RBA) released the meeting minutes, corresponding to the interest rate decision on June 15-16. After the release of the minutes, AUDUSD showed mild volatility in the first minute, with an opening price of 0.6879 and a closing price of 0.6880, a gain of 1 basis point. Judging from the immediate market reaction, market participants did not place high importance on these minutes.

▲ATFX Chart

Before the release of the minutes, AUDUSD maintained a minute-level upward trend, with the market price rising from 0.6865 at 9:13 to 0.6881 at 9:33, a gain of 16 basis points. Subsequently, a short-term decline began, and around 10:33, almost all the previous gains were erased. The Australian dollar's short-term performance of rising first and then falling may indicate that market participants have an overall pessimistic attitude towards these minutes, and the hawkish expectations for interest rate hikes fell short of expectations.

The minutes explicitly mentioned: The decline in international oil prices, combined with lower-than-expected domestic April inflation and employment data, has significantly cooled market expectations for either a rate cut or a rate hike. This means the RBA is dissatisfied with the job market and lacks confidence that future inflation will remain high.

The minutes also mentioned: The probability of another 25 basis point rate hike within 2026 is 50%; compared to the rate hike expectations at the end of the May meeting, market expectations have retreated. The pace of rate hikes is the core focus for the market regarding the minutes. The RBA confirmed the number (1) and magnitude (25 basis points) of rate hikes in the second half of the year. A slow pace of rate hikes will have a negative impact on the Australian dollar.

Above is the chart of Australia's quarterly CPI year-on-year data - ATFX

From Q2 2025 to the present, Australia's inflation rate has been on a steady upward trend. The latest inflation rate for the first quarter of this year is 4.1%, higher than the 2% moderate standard, showing initial signs of runaway inflation. The impact of the US-Iran conflict on international oil prices is concentrated in the second quarter, and it is highly likely that Australia's Q2 inflation data will continue to rise significantly. Although the RBA indicated in the minutes that it would raise rates once in the second half of the year, if inflation data remains high, the actual number and magnitude of rate hikes may exceed expectations.

The 2-year government bond yield has the most significant impact on the exchange rate. The above chart shows the trend of Australia's 2-year government bond yield. - ATFX

Starting from June 8, Australia's 2-year government bond yield entered a downward trend, falling from 4.677% to 4.425% so far, a drop of 25.2 basis points. For AUDUSD, from June 8 to the present, the market has been in a downtrend, with the market price falling from 0.7178 to 0.6879, a drop of 299 basis points. If the RBA's external stance remains dovish, the 2-year government bond yield may continue to fall, and AUDUSD's decline may be difficult to end in the short term.

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