Australian dollar dips on dovish RBA

The Australian dollar weakened to around $0.652 on Wednesday, surrendering gains from the previous session as the impact of a dovish interest rate cut by the Reserve Bank of Australia (RBA) continued to weigh on the currency.

On Tuesday, the central bank trimmed its official cash rate as widely expected, but the accompanying statement struck an even softer tone, signaling that additional easing may be required to meet its inflation and employment objectives amid signs of waning economic momentum.

The RBA also revised its 2025 GDP growth forecast down to 1.7% from 2.1%, citing subdued public demand early in the year and little evidence that activity will rebound meaningfully in the near term.

Policymakers highlighted that slowing consumer spending, weaker private investment, and persistent global headwinds were likely to keep the economy running below potential, reinforcing the case for a more accommodative stance if conditions do not improve.

Market pricing reflects a cautious near-term outlook, with futures now implying only a 34% probability of another rate cut in September. However, traders have fully priced in two additional cuts by early 2026, which would lower the cash rate to around 3.1%. While this trajectory supports the view that monetary policy will remain loose for an extended period, the Australian dollar found some resilience from external factors.

A softer U.S. dollar, driven by mounting expectations of a September Federal Reserve rate cut following weaker inflation data, helped to limit the AUD’s downside. At the same time, the commodity-linked currency drew support from firmer iron ore prices, as the 90-day extension of the U.S.–China trade truce boosted demand expectations for Australia’s resource-rich exports.

The combination of softer domestic fundamentals and more favorable global trade sentiment has created a tug-of-war in the currency’s short-term direction, leaving investors focused on upcoming Australian employment data and China’s industrial output figures for further cues.