SYDNEY: The Australian dollar slipped on Tuesday after the country’s central bank cut interest rates as expected while highlighting the economic risks from a global trade war, supporting market wagers for further easing ahead.
The Reserve Bank of Australia trimmed its cash rate by 25 basis points to a two-year low of 3.85%, citing progress in reducing inflation and global uncertainty caused by US tariffs. The easing was fully priced by markets since the levies were first announced in early April.
Investors were still looking for at least two more such cuts this year to take rates to between 3.10% and 3.35%, with the RBA itself noting its new economic forecasts had assumed a total reduction of around 85 basis points from 4.10%.
“The RBA delivered a dovish rate cut, weighed down by a cocktail of global and domestic uncertainties,” said Saxo Chief Investment Strategist Charu Chanana.
“With the RBA sounding increasingly uneasy, the path of least resistance for the Aussie may remain lower, especially if domestic data softens further or global risks flare up again.”
The Aussie fell 0.5% to $0.6428, unwinding some of a 0.8% rally the previous session as the US dollar suffered in the wake of a Moody’s ratings downgrade.
Support lies at $0.6388 and $0.6358, with resistance at $0.6500 and $0.6515.
The kiwi dollar dipped 0.2% to $0.5919, having gained 0.9% overnight.
It has support at $0.5850, with resistance around $0.5969 and $0.6022.
Three-year Australian bond futures climbed 9 ticks at 96.440, while 10-year yields eased 5 basis points to 4.455%.
Australian dollar braces for RBA decision, kiwi awaits more fiscal pain
The RBA also released new forecasts for the economy that showed it expected inflation to be slightly lower, and unemployment higher, even assuming rate cuts of 85 basis points.
Core inflation has cooled to a three-year low of 2.9%, taking it back into the RBA’s target range of 2% to 3% and a long way from the peak of 6.8% hit in late 2022.
Markets are also wagering the Reserve Bank of New Zealand will further cut its cash rate when it meets on May 28.
The central bank is expected to trim by a quarter point to 3.25% and, having already slashed rates by a total of 200 basis points, is likely nearing the end of the easing cycle.
Investors have rates bottoming at 3.0% or 2.85% by August and remaining there for some time.
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