The Australian Dollar remained steady near a two-month high after the Reserve Bank of Australia (RBA) implemented a 25-basis point rate cut to 4.10%, its first easing since 2020, yet it remained cautious about the possibility of further rate reductions.
Following the announcement, the Aussie held at $0.6351, after initially fluctuating. It reached a two-month peak of $0.6374 on Monday and has gained 2.4% in February, boosted by easing trade war concerns.
Prashant Newnaha, a senior rates strategist at TD Securities, noted that the RBA’s statement effectively struck a balance, avoiding any commitment to further rate cuts while keeping options open. “That said we retain our forecast for cuts in May and August.”
Swaps suggest only a 20% chance of a follow-up rate cut in April, with a May move almost fully priced in, Reuters reports.
Furthermore, during a media conference, Australia’s central bank governor Michele Bullock cautioned that market expectations of two more quarter-point cuts this year seemed overly optimistic, with policymakers adopting a more cautious outlook on future economic conditions.
Kerry Craig, global market strategist at JP Morgan Asset Management, suggested that the RBA’s recent rate cut seems more like an “insurance” move, aligning with the actions of other global central banks, rather than the beginning of an aggressive easing cycle.
“This easing cycle will certainly not be a sprint to the end, but rather a slow walk on the path towards lower rates and further cuts ahead.”
This week, investors will closely watch the release of the Federal Reserve’s January meeting minutes on Wednesday, as to how policymakers are balancing concerns over the potential risks of an expanded tariff war amid President Trump’s trade policies.
Data from last week showed US consumer prices rose at the fastest pace in nearly 18 months in January, reinforcing the Federal Reserve’s stance of not rushing to cut rates despite growing economic concerns.
“Trade policy uncertainty is at a record high … and given that the labour market is solid, there is no compelling case to cut rates imminently,” stated ANZ strategists.
“An extended pause during the first half of this year looks justified and will give the Fed time to assess the impact of trade measures on inflation.”
The Dollar index, which tracks the greenback against six major currencies, rose by 0.27% to 107.01 at the time of writing. Despite this uptick, it remains close to the two-month low of 106.56 it hit last Friday.