Brent crude oil has extended its recent gains again, MUFG reported, with no sign yet of a breakthrough that would allow the reopening of the Strait of Hormuz — a narrow channel at the mouth of the Persian Gulf through which roughly one-fifth of global daily oil consumption typically passes. The bank pointed to a hardening in President Trump's public position as a key driver, noting that he has rejected Iran's request for reparations and argued instead that Iran must pay for past aggressions across the region. That escalation in rhetoric, MUFG said, raises the risk that inflation pressures tied to the conflict could build again just as markets had begun to hope for de-escalation.

The bank's central concern is that a further rise in energy prices could turn September into a busy month for central banks more broadly, several of which may feel compelled to respond with rate hikes if the inflationary impulse from the Middle East intensifies. The Reserve Bank of Australia, which held its cash rate at 4.35% at Tuesday's meeting — its second consecutive hold — was cited as a case in point.

MUFG said a September hike remains possible should energy prices rise notably over the coming weeks, but it detected no particular sense of urgency in the RBA's communication. In the bank's reading, with monetary policy already assessed as somewhat restrictive, the RBA has room to wait and must weigh that flexibility against signs of higher unemployment and a weakening property market before deciding on any further tightening. MUFG characterized the RBA's communication as deliberately unhurried rather than dovish, arguing the Board has bought itself time by leaning on softer domestic signals even while leaving the door open to another move.

Governor Michele Bullock acknowledged that it remained "quite possible" the RBA would need to raise rates again, a comment MUFG reads as evidence that the Board, like several of its global peers, is now weighing softer domestic conditions against unpredictable upside inflation risk originating offshore. This framing places the RBA firmly in the same category as other central banks confronting an externally driven inflation shock rather than a domestically generated one — a distinction that changes the calculus for how quickly policy might need to respond, since an offshore energy spike can move through consumer prices faster than the typical monetary policy transmission lag allows.

The RBA's updated forecasts reinforced that tension. Headline and underlying inflation are not expected to reach the 2.5% midpoint of the target range until early 2028, a profile MUFG says implies the Bank would likely need to act again if external inflation risks were to worsen from current levels.

For now, MUFG's own assumption is that an escalation in the Middle East will be avoided and that a deal will ultimately be reached before the US mid-term elections in November, meaning the RBA should not need to raise rates further. However, the bank was explicit that this is a close call — a view it says was reinforced by the tone of the RBA's latest communication.

Markets have already begun to reflect that uncertainty. Australia's two-year yield drifted 2 to 3 basis points higher on the day, and one additional rate hike is now nearly fully priced in by next March. MUFG attributes this repricing entirely to external inflationary pressure rather than any domestic factor.

In foreign exchange, MUFG sees scope for AUD/JPY to retrace more of the drop triggered by intervention at the end of July, a view consistent with the currently low volatility backdrop the bank flags elsewhere in its research. The bank had previously opened a long AUD/JPY position at 111.20 with a target of 114.50, as the debate over potential yen intervention continued to build.

Other major Australian bank analysts have offered differing perspectives on the RBA's trajectory. NAB described the RBA's wording shift as relatively even-handed and projects the first rate cut only by mid-2027. Westpac, meanwhile, argued that the RBA hold looks entrenched despite what it characterized as a hawkish inflation guardrail.

MUFG is not forecasting a hike, but it is not ruling one out either — and neither, by its own admission, is the RBA.