US-Iran talks sustain cautious market tone as RBA delivers dovish hike

Key market data:

Snapshot:

• Gold gained 1.00% to $4,154
• WTI crude fell 0.83% to $91.84
• JPY led the gainers, AUD lagged on the day
• 10-year Treasury yields dipped 1.4 bps to 5.217%
• S&P 500 futures edged up 0.1% to 7752.5
• Bitcoin rose 0.63% to $84,028

The RBA rate decision dominated the session. The Reserve Bank of Australia unanimously raised the cash rate by 25 bps to 4.60%, attributing the move to the materialisation of some upside inflation risks and the need for further tightening in financial conditions. Yet the statement revealed a subtle dovish adjustment in its forward guidance. The previous language about inflation returning to the midpoint of the target range in late 2027 was dropped. Instead, the Bank said further tightening is warranted to bring inflation back to target within a "reasonable period." It also changed its guidance on future rate increases from raising them if upside risks emerge to doing so "if needed," suggesting a higher bar for additional tightening.

Governor Bullock echoed that message in her press conference. She said the RBA had considered only two options at this meeting — leaving rates unchanged or a 25 bps increase — while acknowledging that price pressures are expected to persist longer than previously anticipated. She also stressed that monetary policy works with a 12–18 month lag and that the full effect of the rate rises already implemented has yet to flow through the economy. Bullock added that should inflation continue to decline, further hikes might not be necessary, and that a recession does not represent the central case. This points to the RBA increasingly preferring to wait and gauge the impact of existing tightening before reacting to each inflation reading.

The central bank is therefore keeping the door open to another hike without committing to one. August CPI data arriving tomorrow will still be significant, but Bullock explicitly cautioned against reading too much into a single month's numbers. On balance, the RBA's stance is becoming less inclined toward additional tightening while remaining ready to act if inflation pressures continue.

Tentatively optimistic price action has been evident, with crude oil prices declining through the session on expectations of progress from the ongoing US-Iran talks. Iranian Foreign Minister Araghchi said he expected a formal response today to Tehran's proposal for reopening the Strait of Hormuz. According to diplomatic sources cited by Al Hadath, mediators are working on a US-Iranian understanding that would enable the revival of the Islamabad MoU. However, Washington and Tehran both express "frustration over the results of the current negotiations."