- The Australian Reserve Bank is expected to cut the OCR at 25 basic points.
- The Governor of the RBA, Michele Bullock, will probably address concerns about tariffs.
- The Australian dollar could fall to new minimums of several weeks in a moderate result.
The Bank of the Australian Reserve (RBA) is celebrating a monetary policy meeting on Tuesday and is expected to reduce the official cash type (OCR) in 25 basic points (PBS) at 3.60% from 3.85%. The July monetary policy announcement will take place on Tuesday at 04:30 GMT.
The RBA will also publish the Monetary Policy Declaration, a document that details the opinions of those responsible for the policy on current economic conditions, and a perspective detailing what they expect for the coming months. Finally, the Governor of the RBA, Michele Bullock, will offer a press conference.
Before the announcement, the Australian dollar (AUD) weakens in front of its American rival, since the US dollar (USD) gains demand in an environment of risk aversion.
Focus on the next RBA interest rates movement
Recent growth and inflation data have been softer than expected, supporting the case for a rate cut.
The monthly consumer price index (CPI) is an annualized inflation estimate, which stood at 2.1% in May, decreasing from 2.4% recorded in April and below the advanced 2.3%. The Australian Statistics Office (ABS) also reported that the adjusted CPI of the RBA grew 2.4% in annual terms, softer than the previous 2.8%, and the lowest level since November 2021.
At the same time, Australia reported that the economy grew less than expected in the first quarter of the year, moving 1.3% year -on -year (yoy) compared to the increase of anticipated 1.5%. In the three months until March, the economy expanded 0.2%, half of the 0.4% expected.
The softer inflation, together with warm growth, supports another rate cut, particularly since the RBA has maintained a cautious waiting posture and see for much longer than any other central bank.
The third component of the equation, the labor market, has been something strong. According to the latest monthly employment report published by the ABS, the unemployment rate remained stable at 4.1%. The country lost 2.5K jobs in May, although the great loss came from part -time jobs, which fell into 41.2k, while full -time positions increased by 38.7K. However, the strength of the labor market is not enough to take a waiting position and see.
The uncertainty about tariffs adds interest to the ad, as well as to the planned cut. At the May meeting, those responsible for the policy discussed whether to cut in 25 or 50 basic points (PBS), finally opting for the smallest reduction. Before the announcement, financial markets are also considering a modest cut of 15 pbs.
The expected 25 PBS reduction may sound encouraging for financial markets, but recently for homes. The high mortgage rates have been a key factor in the slow growth, and the cuts of cautious rates delivered by the RBA have done little to boost consumption.
Meanwhile, market concerns revolve around the tariffs of US President Donald Trump. The US Secretary Scott Besent declared that President Trump will send letters to some commercial partners, indicating that tariff increases will be implemented on August 1 if there is no progress in negotiations. Besent added that he hopes to see “several major ads in the next few days” on trade agreements.
How will the decision of the Bank of the Australian Reserve to Aud/USD impact?
Market participants will be attentive to the words of the Governor of the RBA, Michele Bullock, about tariffs and future monetary policy decisions. Interest rate cuts are somehow conditioned by President Trump’s tariffs, since the world fears that tariffs increase inflation.
Meanwhile, the Aud/USD torque trades a handful of PIPs above the 0.6500 brand, after falling to 0.6482 at the beginning of the day. The relaxation of interest rates is usually moderate and weighs on the affected currency, however, an increase of 25 PBS is completely discounted. With that in mind, the announcement itself should have a limited impact on the torque, unless the RBA opts for a greater or lesser cut. The pair could react to Bullock’s words on what the Board plans for the near future.
Valeria Bednarik, chief analyst of FXSTERET, points out: “The aud/usd torque is quoted, and despite the intradia from new minimums, the risk leans down. The resistance is found at 0.6530, en route to the price zone of 0.6570, where the vendors are likely to reappearance. A slide through the minimum intra. 0.6440, while additional landslides could see when trying the 0.6400 mark.
Bednarik adds: “Regardless of the announcement of the RBA and the initial reaction of the Aud/USD torque, it seems unlikely that the Central Bank will eclipse the concerns related to the ongoing tariffs. The markets will operate again based on the feeling after digesting the decision of the RBA and will quickly discount the following.”
Australian dollar – frequent questions
One of the most important factors for the Australian dollar (Aud) is the level of interest rates set by the Australian Reserve Bank (RBA). Since Australia is a country rich in resources, another key factor is the price of its greatest export, iron mineral. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and commercial balance. The feeling of the market, that is, if investors are committed to more risky assets (Risk-on) or seek safe shelters (Risk-Off), it is also a factor, being the positive risk-on for the AUD.
The Australian Reserve Bank (RBA) influences the Australian dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of the interest rates of the economy as a whole. The main objective of the RBA is to maintain a stable inflation rate of 2% -3% by adjusting the interest rates or the low. Relatively high interest rates compared to other large central banks support the AU, and the opposite for the relatively low. The RBA can also use relaxation and quantitative hardening to influence credit conditions, being the first refusal for the AU and the second positive for the AUD.
China is Australia’s largest commercial partner, so the health of the Chinese economy greatly influences the value of the Australian dollar (Aud). When the Chinese economy goes well, it buys more raw materials, goods and services in Australia, which increases the demand of the AU and makes its value upload. The opposite occurs when the Chinese economy does not grow as fast as expected. Therefore, positive or negative surprises in Chinese growth data usually have a direct impact on the Australian dollar.
Iron mineral is the largest export in Australia, with 118,000 million dollars a year according to data from 2021, China being its main destination. The price of iron ore, therefore, can be a driver of the Australian dollar. Usually, if the price of iron ore rises, the Aud also does, since the aggregate demand of the currency increases. The opposite occurs when the price of low iron ore. The highest prices of the iron mineral also tend to lead to a greater probability of a positive commercial balance for Australia, which is also positive for the AUD.
The commercial balance, which is the difference between what a country earns with its exports and what it pays for its imports, is another factor that can influence the value of the Australian dollar. If Australia produces highly requested exports, its currency will gain value exclusively for the excess demand created by foreign buyers who wish to acquire their exports to what you spend on buying imports. Therefore, a positive net trade balance strengthens the AUD, with the opposite effect if the commercial balance is negative.
Economic indicator
RBA interest rate decision
He Australian Reserve Bank (RBA) announces your decision on interest rates at the end of your eight meetings scheduled per year. If the RBA adopts a hard line posture on the inflationary perspectives of the economy and uploads interest rates, it is usually bullish for the Australian dollar (Aud). Similarly, if the RBA has a moderate vision of the Australian economy and maintains interest rates without changes, or reduces them, it is considered bassist for the AUD.
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Next publication:
Mar Jul 08, 2025 04:30
Frequency:
Irregular
Dear:
3.6%
Previous:
3.85%
Fountain:
Reserve Bank of Australia
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
