Australian Dollar struggles as RBA rate cut looms, US Dollar strengthens
- The Australian Dollar declines as RBA is widely expected to deliver a 25 basis point rate cut next week.
- The prospects for an RBA rate cut have strengthened as core inflation eased, with continued economic momentum in June.
- Trump has nominated Stephen Miran to replace Adriana Kugler on the Federal Reserve Board of Governors.
The Australian Dollar (AUD) depreciates against the US Dollar (USD) on Friday, after three days of gains. The AUD/USD pair loses ground as traders are pricing in over 92% odds of a 25 basis point rate cut by the Reserve Bank of Australia (RBA) next week, which would bring the cash rate down to 3.60%.
The likelihood of an RBA rate cut has increased as core inflation eased to 2.7% in June, well within the RBA’s 2–3% target, along with rising unemployment and slowing wage growth. Supporting this outlook, Australia’s Trade Surplus increased to 5,365 million month-over-month in June, surpassing the expected 3,250 million, while exports grew by 6.0% month-over-month, signaling continued economic momentum.
According to Reuters, US President Donald Trump warned China, Australia’s close trading partner, that he could impose further tariffs similar to the 25% levies announced earlier on India over its Russian Oil purchases, depending on future developments.
Australian Dollar faces challenges as US Dollar recovers recent losses
- The US Dollar Index (DXY), which measures the value of the US Dollar against six major currencies, is gaining ground and trading around 98.10 at the time of writing.
- US President Donald Trump has nominated Stephen Miran, chair of the Council of Economic Advisors, to succeed Adriana Kugler on the Federal Reserve Board of Governors. Traders will also keep their eyes on Trump’s plans to replace Fed Chair Powell. Fed Governor Christopher Waller is emerging as a top candidate to serve as the central bank’s chair among Trump’s advisers, per Bloomberg.
- Traders are pricing in nearly a 93% possibility of a 25 basis point (bps) cut in September, up from 48% a week ago, according to the CME FedWatch tool. The expectations for Fed rate cut next month, with another possible move in December, are boosted as new applications for unemployment insurance in the United States (US) increased, following the July US Nonfarm Payrolls (NFP) report pointed to a cooling labor market.
- US Initial Jobless Claims showed that the number of US citizens submitting new applications for unemployment insurance increased to 226K for the week ending August 2. This figure came in above the market consensus of 221K and was higher than the previous week’s 218K.
- President Trump announced plans to raise tariffs on pharmaceuticals to as much as 250% and, in the latest move, impose a 100% levy on semiconductor imports. Trump’s sweeping retaliatory tariffs took effect on Thursday, with rates ranging from 10% to 41%, fueling concerns about their potential impact on the US economy.
- Federal Reserve Bank of San Francisco President Mary Daly said on Wednesday that the Fed still has some ground to cover on its fight with inflation pressures despite overall progress. Daly highlighted that the Fed may be forced to act soon without having the full picture.
- Boston Fed President Susan Collins and Fed Board of Governors member Lisa Cook cautioned that persistent uncertainty remains a major obstacle to effective policy transmission and challenges the central bank’s ability to manage interest rates efficiently.
- The US and China were unable to reach an agreement on extending the 90-day tariff pause during their latest round of talks in Stockholm, Sweden. The current pause is set to expire on August 12, with the final decision resting in the hands of US President Donald Trump. In the meantime, US tariffs have been lowered from 145% to 30%, while Chinese tariffs have been reduced from 125% to 10%.
- China’s Trade Balance arrived at CNY705.10 billion in July, expanding from the previous figure of CNY585.96 billion. Exports rose 8.0% YoY in July following 7.2% in June, while imports increased 4.8% YoY against 2.3% recorded previously. In US Dollar (USD) terms, China’s Trade Balance arrived at +98.24 billion versus +105 billion expected and +114.77 billion priors.
- Australia was spared from the latest United States (US) tariff hikes, indicating that President Donald Trump had left the 10% baseline tariffs on Australian goods unchanged.
Australian Dollar remains above 0.6500, near nine-day EMA
The AUD/USD pair is trading around 0.6510 on Friday. Technical analysis on the daily chart suggests a bullish market sentiment, with the 14-day Relative Strength Index (RSI) positioning above the 50 level. Additionally, the pair remains above the nine-day Exponential Moving Average (EMA), signaling that short-term momentum is strengthening.
On the upside, the AUD/USD pair could explore the area around the psychological level of 0.6600, followed by the nine-month high at 0.6625, which was recorded on July 24.
The AUD/USD pair may test the nine-day EMA at 0.6501, aligned with the 50-day EMA at 0.6498. Further declines below could weaken the short- and medium-term price momentum and prompt the pair to test the two-month low of 0.6419, which was recorded on August 1, followed by a three-month low at 0.6372, recorded on June 23.
AUD/USD: Daily Chart
Australian Dollar PRICE Today
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the strongest against the British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.08% | 0.06% | 0.04% | -0.06% | -0.04% | -0.18% | 0.04% | |
| EUR | -0.08% | 0.00% | 0.03% | -0.11% | -0.07% | -0.16% | -0.03% | |
| GBP | -0.06% | -0.01% | 0.00% | -0.12% | -0.18% | -0.04% | -0.10% | |
| JPY | -0.04% | -0.03% | 0.00% | -0.08% | -0.15% | -0.20% | 0.02% | |
| CAD | 0.06% | 0.11% | 0.12% | 0.08% | 0.04% | 0.05% | 0.06% | |
| AUD | 0.04% | 0.07% | 0.18% | 0.15% | -0.04% | 0.01% | 0.01% | |
| NZD | 0.18% | 0.16% | 0.04% | 0.20% | -0.05% | -0.01% | 0.07% | |
| CHF | -0.04% | 0.03% | 0.10% | -0.02% | -0.06% | -0.01% | -0.07% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.