The RBA cut its cash rate by 25 basis points (bp) to 4.10% today in its first easing since the 2020 pandemic but was still cautious about prospects of further policy easing.
That left the AUD 0.2% lower but steady at US$0.63441 after an initial burst of choppiness following the policy decision. The Aussie touched a two-month high of US$0.6374 yesterday.
“For the AUD, the depth of cuts matters more than timing,” said Yuxuan Tang, global market strategist at JP Morgan Private Bank.
“Current levels suggest that the AUD has factored in tariff-related risk premiums. While we acknowledge potential drags from widespread tariffs, pricing appears comprehensive”.
Investor focus this week will be tomorrow’s release of minutes of the Federal Reserve (Fed)’s meeting in January to gauge how policymakers have sought to weigh the risk of a broader tariff war in the wake of president Donald Trump’s trade policies.
Data last week showed US consumer prices increased at the fastest pace in nearly 18 months in January, reinforcing the Fed’s message that it was in no rush to resume cutting rates amid growing economic worries.
“Trade policy uncertainty is at a record high …and given that the labour market is solid, there is no compelling case to cut rates imminently.
“An extended pause during the first half of this year looks justified and will give the Fed time to assess the impact of trade measures on inflation,” ANZ strategists said in a note.
ANZ now expects rate cuts to resume in the second half of 2025, with a further 75 bps of easing anticipated.
Markets though are not as optimistic, with traders pricing in 40bp of cuts for this year.
In Asia, the yen held on to its recent gains as strong growth data bolstered odds of the Bank of Japan raising interest rates again this year, with July seen as a live meeting.
The yen was steady at 151.61 to the dollar as Japan’s solid October-December GDP data yesterday, coupled with recent inflation numbers, helped lift the currency.
It is up nearly 4% against the dollar so far in 2025.
The dollar index, which measures the greenback against six other major currencies, was 0.1% higher at 106.83 but still near the two-month low of 106.56 it touched on Friday.
The euro was steady on the day at US$1.04735, while sterling last bought US$1.2608 as traders braced for talks in Saudi Arabia later today aimed at ending the Ukraine war.
The New Zealand dollar fell 0.3% to US$0.57195 ahead of the Reserve Bank of New Zealand meeting tomorrow, where the central bank is widely expected to cut rates by 50 bps.