By Areena FxThe Australian dollar is coming off a strong week, gaining almost 1% against the US dollar. In Monday’s European session, AUD/USD is almost unchanged at 0.6521.
RBA widely expected to cut rates
The Reserve Bank of Australia is virtually certain to lower rates at Tuesday’s meeting. This would be the third cut of 2025 and would lower the cash rate to 3.60%, its lowest level since April 2023. This indicates a gradual, cautious approach to lowering rates.
The RBA had a trick up its sleeve in July, when it opted to hold rates. The markets had widely expected a rate cut but the RBA said that it wanted to see additional inflation data before delivering a rate cut.
Inflation has been cooling, as CPI for the second quarter nudged down to 2.1% y/y, down from 2.4% in Q1. This strongly supports the case for a rate cut as CPI has fallen close to the lower band of the RBA’s 2%-3% target. Core inflation has also been easing lower. As well, the labor market is showing signs of cooling and the central bank wants to avoid a sharp deterioration in employment data.
With today’s move practically a given, investors will be looking for hints about further cuts. Governor Bullock has sounded cautious, noting that inflation remains sticky and there is continuing uncertainty over US tariffs.
Australian goods face a low 10% US tariff, which is not expected to have a significant impact on the economy. However, US tariffs on China, which is Australia’s largest trading partner, could weigh on economic growth.
In the US, it’s a very light calendar with no tier-1 events. On Tuesday, the US releases CPI for July, which is expected to tick up to 2.8% from 2.7% in June.
AUD/USD technical
- AUD/USD is testing support at 0.6414. Below, there is support at 0.6506.
- There is resistance at 0.6529 and 0.6536.
