Sean Callow, analyst at Westpac, points out that AUD has held up against a softer US dollar this week and is another solid performance given that it had to absorb the RBA’s first rate cut since 2016, clear indications that another move is very likely and then Australia’s very poor GDP data.
Key Quotes
“The RBA’s 25bp cut to 1.25% was fully priced in and the statement’s concluding sentence didn’t imply great urgency to cut again, so AUD’s initial largely steady response was reasonable.”
“Tuesday’s decision and the surrounding commentary were in line with our existing call for the next cut to be in August. This was reinforced by Q1 GDP growth of just 1.8%yr, the slowest since 2009, including a -0.2% contraction in private demand. This all seems likely to undermine AUD near term and multi-month.”
“But AUD/USD at least has been able to edge a little higher over the week, thanks to the fall in the US dollar against all G10 currencies. Pricing for Fed rate cuts has become aggressive, especially after President Trump’s very unexpected tariff threat against Mexico. This has shaken the US dollar’s yield support, with rate cut talk set to remain a hot topic.”
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