MUFG’s Head of Research Derek Halpenny argues the Australian Dollar has benefited from expectations of further RBA tightening and a positive terms-of-trade impulse from higher energy prices. However, he warns AUD risks are elevated, as a further spike in Oil that raises global recession fears could trigger a correction lower and influence the RBA’s policy calculus next week.

RBA decision and commodity terms of trade

"If there’s a central bank that hikes, it will likely be the RBA on Tuesday. The RBA has already hiked and Deputy Governor Hauser spoke this week of inflation being “toxic” and higher than what the RBA was expecting. The market gives a hike next week a 65% probability."

"Hiking rates with a clearer positive terms of trade impact has helped AUD perform well. Looking at Australia’s export breakdown, mineral fuels, including crude oil accounted for 27% of total exports in 2025, the second largest category of exports (behind ores, slag & ash). However, AUD risks are also high and a further spike in crude oil prices that raises global recession risks would likely see that drive a correction lower in AUD."

"That may well play into RBA considerations next week and with inflation already above target, the risk of a hike is high even given the backdrop of increased global uncertainties."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)