AUD/USD is steady around 0.65, the mid-point of a 0.64-0.66 range over recent months, as markets await today’s Reserve Bank of Australia decision. The futures market has largely priced in a 25 bps decline in the cash rate target to 3.60% following below-target inflation, slower job growth, and dovish comments from RBA Governor Michele Bullock and Treasurer Jim Chalmers. However, the RBA’s restructured board, where half of its nine-member monetary policy board are external, has added an element of unpredictability after its surprise decision to hold rates in July rather than the expected cut. Overall, the RBA is likely to maintain a cautious and data-dependent tone, given the lingering global and domestic uncertainties. Focus should quickly turn to today’s US CPI data. Barring surprises that reinforce the Fed’s caution about transitory tariff-led inflation, the futures market has priced in a narrowing of the policy rate differential through 2026 in favour of the AUD.
Between July 24 and July 31, AUD/USD fell from 0.66 to 0.64 ahead of the end of the extended 90-day tariff pause on August 2 – a smaller move than the drop from 0.64 to 0.59 after the Liberation Day tariff announcement. Except for some countries, most of US President Donald Trump’s tariff hikes on Asian countries were lower than the steep initial rates in April. Stocks did not plunge as they did in April, with Australian and US equities climbing to record highs. Looking ahead, there should be some relief from Trump’s decision to extend the tariff truce with China by another 90 days into early November. Extending the deadline would avoid a sudden jump in tariff-led inflation from China and remove a constraint to early Fed cuts starting in September.
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