How will tariff letters and RBA policy decisions impact AUD/USD this week?

AUD/USD retreats ahead of RBA meeting and tariff deadline

The AUD/USD pulls back from eight-month highs as traders await the RBA's anticipated rate cut and President Trump's tariff letters to 12 countries. Currency faces pressure from US dollar strength and trade uncertainty.

The AUD/USD finished last week at 0.6553, up 0.35%, easing from the eight-month high of 0.6590 it hit earlier in the week.

The retreat from the 0.6590 high last week came ahead of tomorrow's Reserve Bank of Australia (RBA) Board meeting (previewed below), and as US dollar yields and the US dollar gained support following better-than-expected jobs data and the House of Representatives' passage of President Trump's tax bill.

Tariff uncertainty weighs on risk sentiment

The AUD/USD has extended its decline in the opening session of this week, hitting a one-week low of 0.6511 (-0.63%) as tariff uncertainty weighed on risk sentiment ahead of 9 July, which marks the end of the Trump administration's 90-day pause on reciprocal tariffs announced on 2 April.

In the lead-up, the White House has confirmed it will today send letters to 12 countries, specifying tariff rates on imports to the United States (US). The "take it or leave it" tariff rates on these 12 countries will be effective from 1 August 2025. While we can only guess which countries will receive a letter, it has been confirmed that Canada has been explicitly excluded from the list due to its USMCA protections, relatively low tariffs on US goods, and strategic importance as a North American partner.

Assuming the countries that are receiving letters are assigned tariff rates of 20-30%, the increase in the average tariff level will be only marginal and unlikely to cause a lasting hit to risk sentiment — provided those impacted do not retaliate by implementing tariffs on US imports.

In a nutshell, whether the AUD/USD extends today's losses or rebounds will depend on the details contained in the tariff letters, which should soon be known, and the outcome of tomorrow's RBA Board meeting (previewed below).

RBA interest rate decision

Tuesday, 8 July at 2.30pm AEDT

At its last meeting in May, the Reserve Bank of Australia (RBA) cut its official cash rate by 25 basis points (bp), taking it to 3.85%. The rate cut was widely expected after the first quarter (Q1) 2025 inflation report showed both trimmed mean and headline inflation fell to within the bank's 2-3% inflation target range.

The RBA's rate cut was accompanied by dovish commentary, where it was highlighted that the RBA was "cautious about the outlook." At the same time, the RBA revised lower its inflation and growth forecasts and revised higher its forecast for the unemployment rate.

Economic data supports further easing

Since then, the case for further monetary policy easing has strengthened. This includes a soft May Consumer Price Index (CPI) report, where the core measure of inflation, the annual trimmed mean, fell to 2.4% year-on-year (YoY) in May from 2.8%, marking the lowest rate since November 2021.

Meanwhile, Q1 Gross Domestic Product (GDP) data released in June showed the Australian economy grew at just 0.2% quarter-on-quarter (QoQ), for an annual rate of 1.3% — well below the 2.75%-3.25% growth rate we had become accustomed to before the Covid-19 shock.

These factors, combined with ongoing concerns around tariffs and trade, have negated any concerns that the RBA may have had about a tight labour market.

As a result, we expect the RBA to cut its cash rate by 25 bp at its Board meeting tomorrow, taking the cash rate back to 3.6%. We anticipate another two 25 bp rate cuts before year-end which would see the RBA's cash rate end the year at 3.10%.

Australian cash rate chart

AUD/USD technical analysis

The AUD/USD's brave attempt last week to break higher appears to have failed for now after it slipped below short-term support at 0.6535, putting itself back within its well-worn 0.6370/50-0.6570/50 range.

This leaves the medium-term picture unclear with the AUD/USD needing to see a sustained break of range extremes to provide a clearer picture as to what comes next.

Specifically, a sustained break above resistance at 0.6590/0.6600 would indicate the next leg higher has commenced towards medium-term resistance at 0.6725. This includes the 200-week moving average and the downtrend line drawn from the 0.8007 high of February 2021.

Aware that a sustained break of support and range lows at 0.6370/50 would suggest that a deeper pullback is underway towards 0.6200/0.6180.

AUD/USD daily chart

• _{Source: TradingView. The figures stated are as of 7 July 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.}