The Australian Dollar fell back against the US dollar on Tuesday, falling to 0.6460, as the market digested the Reserve Bank of Australia’s (RBA) latest policy minutes and the ongoing concerns around global trade. After gaining nearly 1% over Monday’s session, the currency pair fell, as the RBA’s cautious stance, compounded with weaker current account data weighed on the Aussie. The US dollar index (DXY) was unchanged at six-week lows, providing little support for the Greenback.
RBA Opts for Predictability Over Aggressive Rate Cuts
The RBA minutes released earlier on Tuesday showed that the central bank board discussed having a larger cut of 50 basis points (bps) in May as a possibility. They decided to cut 25 bps and lowered the official cash rate to 3.85% from 4.10%. The minutes highlighted checking the predictability of monetary policy while the global economy was cloudy, especially with US tariffs that could impact Australia.
During a speech on Tuesday in Brisbane, Assistant Governor Sarah Hunter commented on the rising trade tensions and how such issues would likely impact business investment, production, and the labor market. “The unpredictability and unprecedented nature of the current situation make it hard to be precise on the size of the impact,” she said. The RBA will “keep an eye on these developments”.
Inflation Eases, But No Shift to Expansionary Policy Yet
Although headline inflation fell to 2.9%, year-on-year, now within the RBA target range, the central bank is reticent. Forecasts suggest inflation will decrease further to 2.6% by end of 2025, but officials say it is too early to change to an expansionary stance with the anticipation of one last drop in inflation.
Market factors have priced this into expectations, as the Reuters poll shows a 70% chance of a further rate cut in July. However, many analysts believe the central bank would likely want some second quarter inflation data before moving on.
US Dollar Holds Ground as Market Eyes Labor Data
The US Dollar has shown modest strength, recovering slightly after Monday’s dip. The DXY remains under pressure near 98.95, but the broader weakness in the Greenback is capping AUD/USD’s downside for now. The US currency continues to be weighed by uncertainty over President Trump’s tariff strategy and softening domestic economic data.
Australia’s GDP and US Jobs Report
As we look forward, investors are now eyeing the Australian Q1 GDP release on Wednesday, the AIG Industry Index and the S&P Global PMI readings. These releases are important in shaping expectations around the trajectory of the Aussie.
In the US, this week will feature labor market cues, with a stronger than expected NFP print possible, which could re-ignite rate hike expectations, supporting the US Dollar and adding further downside pressure on AUD/USD, but any cooling in the labor market may pressure the USD and support the Aussie.
Conclusion
AUD/USD is drifting lower amid cautious RBA guidance and growing global trade risks. While inflation in Australia is easing, policymakers remain hesitant to adopt a more dovish stance. Traders now turn their attention to key data from both Australia and the US, which will likely dictate the next major move for the pair.
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