The Australian dollar weakened against the US dollar, with AUD/USD falling 0.5% to 0.6428 after the Reserve Bank of Australia cut its benchmark interest rate by 25 basis points to 3.85%, marking its second reduction this year and bringing rates to a two-year low.
Dovish RBA Outlook
The RBA cited diminishing inflation risks and growing concerns about the global economic outlook in its decision. Governor Michele Bullock described the rate cut as “a proactive, confidence-driven move” while signaling openness to further easing. Markets are now pricing in approximately 85 basis points of additional cuts by the end of the year, potentially bringing rates to between 3.10% and 3.35%.
Economic Forecasts and Trade Concerns
In its updated economic projections, the RBA revised its 2025 GDP growth forecast downward to 2.1% from 2.4% previously, while predicting a slightly higher unemployment rate. Core inflation has cooled to a three-year low of 2.9%, returning to the RBA’s 2-3% target range after peaking at 6.8% in late 2022. The central bank specifically highlighted global trade tensions as a key downside risk, noting that “any escalation in a global trade conflict presented a key downside risk for the economy.” The Aussie dollar’s decline partially unwound the previous session’s 0.8% gains, which came as the US dollar weakened following Moody’s downgrade of the US credit rating from Aaa to Aa1.
AUDUSD (D1)
AUDUSD is trading above a key EMA. Bulls are likely to retest the previous high near 0.65, while bears will try to break below the 100-day EMA. RSI is in bearish divergence with lower highs, while MACD also trends lower and remains tight.
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