The Reserve Bank of Australia (RBA) is widely expected to reduce its Official Cash Rate (OCR) by 25 basis points to 3.85% from the current 4.10% at the conclusion of its monetary policy meeting on Tuesday. The policy decision is scheduled for release at 04:30 GMT, followed by the central bank’s updated economic forecasts and a press conference with RBA Governor Michele Bullock at 05:30 GMT.
With the rate cut largely priced in by markets, investor attention will turn to the RBA’s revised inflation and growth projections, as well as Bullock’s commentary, to assess the forward path of monetary policy and its implications for the Australian Dollar (AUD).
Cautious Optimism Despite Strong Economic Indicators
Despite expectations for a rate cut, recent Australian macroeconomic data suggest resilience in key sectors of the economy. The labor market remains robust, with 89,000 new jobs added in April—far exceeding forecasts of a 20,000 gain. March figures were also revised higher, and the unemployment rate held steady at 4.1%.
On the inflation front, the Consumer Price Index (CPI) rose by 2.4% year-on-year in the first quarter, matching the previous quarter and surpassing expectations of a 2.2% rise. The RBA’s preferred measure, Trimmed Mean CPI, increased 0.7% quarter-on-quarter and 2.9% annually—remaining near the upper end of the RBA’s 2%–3% target range.
Wage growth also came in stronger than expected, with the Wage Price Index climbing 3.4% annually in Q1, up from 3.2% previously. Quarterly wage growth printed at 0.9%, topping the 0.8% consensus.
These indicators suggest that the Australian economy is showing signs of underlying strength and inflation persistence, which could prompt the central bank to take a more measured approach in future policy decisions.
Market Eyes Bullock’s Messaging and Forecast Revisions
While Tuesday’s rate cut appears to be a foregone conclusion, investors will be closely parsing the RBA’s language for any signals regarding future moves. According to analysts at TD Securities, “OIS markets have fully priced in a 25 bps cut. Of interest will be the RBA’s assessment of the risks around tariffs. We see risks of minor downgrades to GDP, but doubt that CPI will shift materially.”
Governor Bullock is expected to strike a cautious tone, likely warning against premature policy easing. Market participants are also watching for her take on global trade tensions, particularly new US tariffs, and their potential impact on inflation and growth.
A conservative message that emphasizes inflation vigilance could support a modest recovery in AUD/USD, while dovish commentary pointing to further rate reductions may fuel renewed selling pressure.
AUD/USD Outlook Hinges on RBA Cues
From a technical perspective, AUD/USD is trading within a well-defined range ahead of the policy decision, bounded by the 200-day and 50-day Simple Moving Averages (SMAs). Dhwani Mehta, Asian Session Lead Analyst at FXStreet, notes that the 14-day Relative Strength Index (RSI) remains above 50, suggesting lingering bullish momentum.
“AUD/USD remains confined in a range between the 200-day SMA and 50-day SMA heading into the RBA showdown,” Mehta explains. “A dovish cut by the RBA could send AUD/USD lower toward the 50-day SMA at 0.6333. A breach of that level may open the door to the 100-day SMA at 0.6299, with further downside potentially targeting 0.6250.”
On the flip side, bullish momentum would need a decisive break above the 200-day SMA at 0.6452 to challenge the November 25 high of 0.6550 and the psychological 0.6600 barrier.
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