The Australian Dollar (AUD) is extending its decline across major currencies early Tuesday, weighed down by escalating political instability at home. AUD/USD is down 0.23% on the day, trading near 0.6440 as of writing, as traders await the Reserve Bank of Australia’s (RBA) key policy announcement scheduled for 04:30 GMT.
The political landscape shifted dramatically after Australia’s opposition coalition fractured, with the National Party formally ending its alliance with the Liberal Party. National Party leader David Littleproud announced the split, saying, “The National Party will sit alone on a principled basis.”
The breakup has effectively left the ruling Labor Party with a stronger mandate and greater political momentum, while the disarray in the Opposition raises questions over future legislative resistance and economic policy direction. Markets are reacting nervously to the uncertainty, adding pressure to the Aussie Dollar.
Caution Ahead of RBA Rate Decision
Despite the political backdrop, market participants remain largely focused on the RBA’s upcoming interest rate decision. The central bank is widely expected to cut the Official Cash Rate (OCR) by 25 basis points to 3.85%, in what would be its first rate cut in the current cycle.
However, last week’s robust employment data and persistent inflationary pressures have injected some ambiguity into the central bank’s policy outlook. Traders will closely monitor the accompanying policy statement and Governor Michele Bullock’s press conference at 05:30 GMT for guidance on future rate moves.
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