Australia's monetary policy outlook has been pivotal to the direction of AUD in 2015 and will remain so for the rest of the year. The RBA left its policy rate steady at 2.00% at its early August meeting (after cutting 25 bps twice earlier in the year) and for the time being, the Bank maintains a 'wait and see' type message on the economy.



One slight change at the latest meeting is that the Bank appeared to soften their tone on the currency by no longer including the phrase 'further depreciation seems both likely and necessary.' That was taken as a less dovish shift, and fits with our economists' view that the risk of another nearterm rate cut is low.



Ultimately though, our expectation that growth will remain sub-trend and inflation will remain damp, leaves us looking for further easing by Q4. The market has mostly priced another RBA cut, but against a Fed approaching its first hike (that is not fully priced for September), AUD/USD should be pressured toward the lows.



"There is potential for some slight offset of those pressures from capital inflows, as even after a rate cut, AU remains high yielding in the current global low yield environment. Nevertheless, these flows are expected to only mitigate the pressure on the currency", says RBC capital markets.