- RBA cuts policy rate 25 bps as expected.
- Governor Lowe hints at more rate cuts.
- USD struggles to gain traction ahead of Powell speech.
The AUD/USD pair showed some extreme volatility during the Asian session following the RBA’s policy announcements and started to climb higher after the initial reaction. During the European session, the pair stretched higher and came within a touching distance of the critical 0.70 handle before losing its traction. As of writing, the pair was virtually unchanged on a daily basis at 0.6975.
As expected, the RBA cut its policy rate, official cash rate, by 25 basis points to 1.25% on Tuesday. However, the fact that the policy statement sounded relatively balanced allowed the AUD to gather strength and recover the losses it suffered in the past couple of weeks on expectations of today’s rate cut.
Assessing today’s event, “Our forecast is for just one more policy rate cut of 25bp in August taking the cash rate down to 1.0%. Given the race by other forecasters to be the most aggressive in penciling in cuts in recent weeks, this feels a good position to be in. But even our forecast cut is now data dependent and may prove to be too aggressive,” ING analysts said.
Later in the day, while speaking at the RBA Board Dinner with the business community, Governor Lowe said that the board had not yet made a decision on further rate cuts but added that it was “not unreasonable” to expect the cash rate to be lower to force the AUD to retrace its daily gains.
Later in the session, investors will be paying close attention to FOMC Chairman Jerome Powell’s speech and look for clues regarding a Fed rate cut before the end of the year. Ahead of Powell’s speech, the US Dollar Index is posting small gains near 97.30. In the early trading hours of the Asian session, the Australian Bureau of Statistics will release the first quarter GDP figures, whivh is expected to drop to 1.8% from 2.3% on a yearly basis.
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