Above: File image of RBA Governor Bullock. She struck a hawkish tone when addressing the press following today's decision.
The Australian Dollar saw some volatile swings after the Reserve Bank of Australia (RBA) cut interest rates by 25 basis points to 4.10%.
The currency resolved initial volatility and ticked higher into European trade, confirming that the market arrived at an overall verdict that the decision was a 'hawkish' one, i.e. although it cut rates, the central bank didn't commit to further cuts.
"As expected, RBA cuts cash rate 25bp to 4.1%. But a hawkish tone in the forecasts and rhetoric cements our view that RBA will move slowly from here," says Luci Ellis, an economist at Westpac.
The Pound-to-Australian Dollar exchange rate trended lower to 1.9810 before recovering to 1.9850. The Australian Dollar-U.S. Dollar rate traded down to 0.6333 before turning up again.
The RBA noted underlying inflation has decreased to 3.2% in the December quarter, indicating that inflationary pressures are easing more rapidly than anticipated.
The RBA says it remains cautious about future policy easing due to persistent uncertainties, including a tight labour market and global geopolitical tensions.
The Board emphasised that while monetary policy has been restrictive, it will continue to monitor economic developments closely to ensure inflation returns to the 2–3% target range sustainably.
Following the decision, Governor Michelle Bullock offered some 'hawkish' flavouring, pushing back against growing market expectations for a faster pace of cuts, as implied by money market pricing.
"The focus remains firmly on inflation risk," observes Francesco Pesole, FX Strategist at ING. "That approach is in contrast with those of other developed central banks which have shifted towards growth concerns."
Following developments, money markets see two more cuts for the remainder of 2025, with the next likely in July.
Above: GBPAUD (top) and AUDUSD.
"The RBA’s cautious message over the need for further easing is supportive for the Australian dollar which is already one of the top three performing G10 currencies so far this year. The Aussie has outperformed recently alongside the strong rebound in commodity prices," says Lee Hardman, Senior Currency Analyst at MUFG Bank Ltd.
"We have a slightly more dovish forecast with one cut per quarter (three in total). Bullock’s cautious tone on further easing has allowed AUD to counter the USD rebound this morning. That said, we doubt markets are ready to shift expectations to only one RBA cut this year, and AUD’s high exposure to the trade story and risk sentiment may quickly overcome any short-term benefits from the RBA’s tone today," he adds.
ING forecasts a return to 0.62 in AUD/USD by the end of March, with further downside risks in the second and third quarters when U.S. protectionism may intensify.