The Australian dollar (AUD) has faced significant losses in global markets following the Reserve Bank of Australia’s (RBA) latest policy decision. In Asian trade on Tuesday, the Aussie resumed its downward trajectory against the US dollar, falling by 1%, and is now approaching four-month lows, making it the worst-performing major currency of the day.
RBA’s Decision and Market Reactions
At its latest meeting, the RBA opted to keep interest rates unchanged for the ninth consecutive time, maintaining the current rate at 4.35%. While this decision was in line with market expectations, the accompanying statement reflected a more cautious outlook. The RBA expressed confidence that inflation is gradually moving toward its medium-term target. However, the central bank’s tone led markets to adjust expectations for future rate cuts.
The decision prompted traders to increase their bets on interest rate cuts in 2025, with expectations for a 0.25% cut as early as February. This shifted the odds of a rate cut to 50% from 30%, while the likelihood of a 0.25% reduction by April 2025 surged to 100%. The dovish outlook on interest rates put additional pressure on the Aussie, contributing to its sharp declines against most major currencies.
AUD/USD Dynamics
The AUD/USD currency pair dropped 1% on Tuesday, reaching a low of 0.6379, just above a recent four-month trough of 0.6373. This is a significant reversal from Monday, when the Aussie had gained 0.8% to recover from its recent lows. Despite this short-term rebound, the overall sentiment remains bearish for the Australian dollar, especially with the looming prospect of rate cuts.
Losses Against Other Major Currencies
The Australian dollar faced broad-based weakness against other major currencies. It lost over 1% against the US dollar, 0.9% against the euro and British pound, 1% against the Swiss franc, and 0.9% against the Japanese yen. Against the Canadian dollar, the Aussie depreciated by 0.85%, and it also lost 0.35% against the New Zealand dollar.
Outlook for the Australian Dollar
The Australian dollar’s poor performance on Tuesday highlights concerns over the RBA’s cautious stance and the growing expectations for rate cuts next year. With inflation appearing to trend toward target levels, the central bank’s focus seems to be on ensuring that economic growth remains steady while addressing inflationary pressures. However, the markets’ interpretation of these signals is weighing heavily on the Aussie, and unless there is a reversal in sentiment, the currency could continue to face downward pressure in the near term.
Investors and traders will likely continue to monitor further developments in the RBA’s policy direction, as well as global economic conditions, to gauge the future path of the Australian dollar.
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