Australian dollar firms amid global risk appetite, eyes on RBA policy signals
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Daily Currency Update
Overnight, the Australian dollar (AUD) initially plunged more than 1% before recovering to close about 0.13% higher, trading near US$0.6443. This modest rebound followed a sharp earlier decline amid broad U.S. dollar strength, driven by a hawkish Federal Reserve stance. The AUD’s performance against other major currencies was mixed: it slipped 0.54% versus the Indian rupee (INR), 0.12% against the Canadian dollar (CAD), and 0.01% versus the Singapore dollar (SGD), while posting modest gains of 0.11% against the British pound (GBP), 0.04% versus the euro (EUR), and 0.71% against the Japanese yen (JPY). Australia’s economic outlook is tightening, marked by easing inflation and subdued domestic demand, which has increased market expectations for further Reserve Bank of Australia (RBA) rate cuts. June quarter inflation data showed headline CPI slowing to 2.1% year-on-year, with the RBA’s preferred trimmed mean dropping to 2.7%, comfortably within the 2%–3% target range. In response, global markets have largely priced in a 25-basis point cut at the RBA’s August 11–12 meeting, with some analysts forecasting the cash rate could fall as low as 3.10% by year-end.The RBA’s July meeting minutes signaled a cautious approach, noting that while inflation has eased, future policy decisions will depend on labour market and price data confirming a sustained disinflation trend. The board also cautioned against overly rapid rate cuts over a short period. Overall, the RBA views its current policy stance as modestly restrictive following earlier reductions to 3.85%, but additional easing is likely if inflation continues to moderate and demand remains subdued.
Key Movers
Overnight, the U.S. dollar (USD) showed broad strength against major currencies, buoyed by robust economic data and hawkish signals from the Federal Reserve. The dollar index (DXY) rose modestly as investors factored in the likelihood of continued Fed interest rate hikes or a prolonged period of elevated rates. Safe-haven demand also supported the USD amid lingering geopolitical uncertainties and cautious risk sentiment across global markets. This increased demand for the dollar exerted pressure on commodity-linked currencies, such as the Australian and New Zealand dollar, which softened against the greenback. Overall, the USD’s overnight performance reflected a blend of strong domestic fundamentals and prudent investor positioning ahead of key upcoming economic releases. At its most recent meeting on July 30–31, 2025, the Federal Open Market Committee (FOMC) chose to maintain the federal funds target range at 5.25% to 5.50%. This cautious decision comes amid signs of easing inflation and a cooling economy. Chair Jerome Powell emphasised the Fed’s commitment to a data-driven approach, refraining from premature rate cuts despite the softer inflation and economic backdrop. He underscored concerns about structural inflationary pressures and labour market dynamics that could complicate the path to easing. Notably, there was dissent within the committee, with Governors Michelle Bowman and Christopher Waller advocating for an immediate quarter-point rate cut—the first dual dissent since 1993. Powell, however, downplayed this internal disagreement, reaffirming the Fed’s independence from political and fiscal influences. He also highlighted that tariffs have already added approximately 0.3–0.4% to consumer prices, further complicating the inflation outlook.While some market participants anticipate rate cuts beginning in September, Powell’s cautious tone left room for flexibility, underscoring ongoing uncertainty in the future trajectory of U.S. interest rates.
Expected Ranges
- AUD/USD: 0.6300 - 0.6500 ▼
- AUD/EUR: 0.5500 - 0.5700 ▼
- GBP/AUD: 2.0400 - 2.0600 ▲
- AUD/NZD: 1.0800 - 1.1000 ▼
- AUD/CAD: 0.8800 - 0.9000 ▲