Australian Dollar Slides After RBA's Dovish Rate Cut
MarketPulse | May 20, 2025 09:33AM ET
The Australian dollar has posted sharp losses on Tuesday, following the Reserve Bank's decision to lower interest rates. Early in the North American session, AUD/USD is trading at 0.6395, down 0.95% on the day.
RBA Lowers Rates to 3.85%
The Reserve Bank of Australia has lowered its cash rate from 4.15% to 3.85%. The decision was widely expected but the Australian dollar is down sharply as the RBA expressed concern about the impact of tariffs on Australia's economy.
Today's cut was the second this year, as the RBA has been lagging behind other major central banks in lowering rates. Today's decision was driven by two factors. First, core CPI eased to 2.9% in April. This was significant as it marked the first time in two years that underlying inflation has fallen back within the RBA's target range of 1%-3%.
Secondly, the outlook for the global economy has worsened due to the US tariffs and counter-tariffs. President Trump's tariff policy has been erratic, as reflected in the US slapping 145% tariffs on China, only to reduce them to 30% for a 90-day period.
The RBA statement highlighted both of these factors in its decision to lower rates. The statement noted that the outlook for inflation, growth and employment in Australia had been downgraded due to the US tariffs. Governor Michele Bullock bluntly stated that the global situation was "unpredictable" and a "complete rollercoaster".
The RBA will be carefully monitoring Trump's tariff policy, especially with China, as Australia is hugely dependent on its exports sector and further escalations in the global trade war would damage the economy.
There are no US events on the calendar but we'll hear from a host of FOMC members today, which could provide some insights into the Fed's rate path. The Fed is widely expected to hold rates in June and may cut as little as twice in the second half of the year. That could change, depending on inflation, the US labor market and Trump's tariffs.
AUD/USD Technical
- AUD/USD has pushed below support at 0.6440 and 0.6415. Below, there is support at 0.6373
- There is resistance at 0.6482 and 0.6507
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