Will the RBA deliver another interest rate cut as AUD/USD stabilises?

Aussie dollar faces pressure despite steady performance

AUD/USD finished lower last week at 0.6403 (-0.12%), following a significant easing of trade tensions between the United States (US) and China. This reduced downside risks for the US dollar and the US economy, prompting the market to delay expectations for the next interest rate cut by the Federal Reserve (Fed).

Impact of the jobs report and Moody's downgrade

The decline in the Australian dollar also followed Thursday's 'goldilocks' jobs report, which did not change expectations of a Reserve Bank of Australia (RBA) interest rate cut this week. The Australian economy added 89,000 jobs in April, nearly four times the anticipated 25,000 gain. The unemployment rate remained at 4.1%, as the participation rate surged to 67.1% from 66.8%. It was the seventeenth consecutive month that the Australian unemployment rate has been within a 3.9% to 4.1% range.

Despite a tone of risk aversion in equity markets and higher yields today after Moody's downgraded the US credit rating to Aa1 from Aaa, AUD/USD has remained stable, holding above 0.6400 ahead of tomorrow's RBA meeting, previewed below.

RBA interest rate meeting

Date: Tuesday, 20 May at 2:30pm AEST

At its last meeting in April, just before the Liberation Day tariff announcement, the RBA kept its official cash rate unchanged at 4.10%. This 'on-hold' decision was widely expected and followed a 25 basis point (bp) rate cut at its February board meeting, which was its first cut since November 2020.

While the RBA noted the continued decline in inflation was welcome, it emphasised the need for ongoing progress to ensure inflation returns sustainably to the target band.

Michele Bullock, Governor of the Reserve Bank of Australia

'Nevertheless, the Board needs to be confident that this progress will continue so that inflation returns to the midpoint of the target band on a sustainable basis.'

The language in the April meeting sounded more dovish than in February. In February, the Board said it was 'cautious on prospects for further policy easing,' but in April, it said it was 'cautious about the outlook', noting an uncertain global environment influenced by tariff risks.

In the press conference that followed the April meeting, RBA Governor Bullock sounded balanced, noting that the decision to hold rates was a consensus decision and that the board did not explicitly consider another rate cut. Notably, the Governor did not push back against market expectations of further easing, as she did in February.

Preparing for potential RBA rate cuts in 2025

With the first quarter (Q1) 2025 inflation report showing trimmed mean and headline inflation returning to the RBA's 2 - 3% target band for the first time since the fourth quarter (Q4) 2021, coupled with downside risks to global growth due to elevated tariffs and last week's jobs data showing the labour market is balanced, a 25 bp rate cut to 3.85% is expected at tomorrow's meeting.

It is anticipated that one more 25 bp rate cut will occur in August, bringing it to 3.60%, as the RBA continues to relax its restrictive monetary policy settings.

RBA cash rate chart

AUD/USD technical analysis

After completing a triangle-style 'ABCDE' five-wave correction in early April, AUD/USD dropped to a low of 0.5912 on 9 April before rebounding sharply above 0.6500 in early May.

While this impressive recovery exhibited a V-shaped bottom typical of medium-term highs and lows, AUD/USD has yet to solidify this base by rising above the 200-day moving average (MA), currently at 0.6456, and resistance in the 0.6500 - 0.6520 range. If it manages to break these upside resistance levels, it could pave the way for a test of the 200-week MA at 0.6750.

Until then, AUD/USD may continue to consolidate its recent gains, with a dip back into the support 0.6300 - 0.6250 area not ruled out.

AUD/USD daily chart

• ^{_{Source: TradingView. The figures stated are as of 19 May 2025. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}}