Rate relief has little impact on AUD

Daily Currency Update

The AUD tracked a narrow range Tuesday largely ignoring the RBA’s first rate cut over 4 years. Markets had priced in the 25-point rate adjustment and were mostly prepared for the following cautious commentary. While the AUD would normally fall following a reduction in benchmark interest rates Governor Bullock's statement of advice helped arrest any such decline. Leading into the policy meeting markets had priced between 3 and 4 rate cuts through 2025 but Bullock set out clearly that the board is wary of upside risks that could derail deflationary efforts and will be very much data-driven. She was at pains to point out that this cut was not a sign policy makers were setting up a linear path of rate adjustments, noting market expectations had moved well beyond their expected path. In the moments following Bullock's commentary markets pared bets for rate hikes with just two additional hikes now priced in through year-end. The AUD saw some volatility at the time of the announcement but quickly levelled out and remained within a narrow trading handle, bouncing between US$0.6335 and US$0.6365.

With a key risk event now behind us our attention now turns to W4 Wage Price data. The WPI is expected to show wages rising 3.2% in the 12 months to December having moderated from their post-pandemic peak. Offshore the RBNZ is expected to cut rates by 50 basis points to 3.75%, while the FOMC January minutes and UK inflation data round out the macro ticket.