AUD/USD Forecast: RBA Lowers Rates To Two-Year Low (Chart)

(MENAFN- Daily Forex)

• The Reserve Bank of Australia (RBA) lowered the cash rate by a quarter-point to 3.85% at today's meeting.
• The decision was not a surprise, but the Australian dollar has declined considerably following the decision.
• The cut is the second this year, following a quarter-point cut in February and brings the cash rate to its lowest level since May 2023.

RBA Governor Michelle Bullock called the move a“confident cut” and said that the Board had also considered a hold and a jumbo half-point cut, before making a“consensus decision” to deliver a modest quarter-point rate reduction.

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The RBA's announcement comes after a surprisingly strong employment report for April last week. The economy added 89 thousand jobs, which had led to some speculation that the RBA might delay a rate cut. However, two key factors strongly supported today's cut. First, inflation is largely under control, and core CPI fell within the RBA's target of 2%-3% in April for the first time since 2021. The core rate excludes food and energy and is considered a better gauge of inflation trends than headline CPI.

Second, the global economic environment remains highly uncertain due to the US tariff policy. The tariffs have already dampened global growth, and it's unclear if the tariffs, which have triggered counter-tariffs from many countries, will remain in effect or if the US will reduce or remove the tariffs. Australia's economy is highly dependent on exports and will likely require further relief in the form of rate cuts Statement: Inflation Easing but Outlook Uncertain

The RBA statement said that inflation had fallen substantially since the peak in 2022 and noted that core inflation had dropped back within the target range and was expected to remain so in the coming year. At the same time there was uncertainty in the global economy, due to the US tariffs and geopolitical uncertainties. The Board noted that this had led to a“weaker outlook for growth, employment and inflation in Australia”, but it was difficult to make forecasts due to the uncertainty Dollar Lower

The AUD/USD currency pair is trading at 0.6419, down 0.59% on the day. Today's rate cut has weakened the Australian dollar, as the RBA warned that the Australian economy is likely to take a hit due to the turbulent global economic environment Markets React Positively

The S&P ASX 200 stock market index, Australia's benchmark stock index, closed higher on Tuesday, as investors reacted positively to the rate cut. The index closed on Tuesday at 8,343, up 48 points (0.58%).

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