RBA Cuts Interest Rates for the First Time Since 2020, but Caution Remains

The Reserve Bank of Australia (RBA) cut interest rates by 25 basis points to 4.1%, its first reduction since 2020. This follows easing inflation but comes with caution, as the central bank warns it is too early to declare inflation fully under control.

The move aligns with market expectations after weaker-than-anticipated inflation data. However, the RBA remains wary of persistent price pressures, particularly from a strong labor market. Officials stressed that monetary policy remains restrictive, and future cuts will depend on inflation trends. The bank projects underlying inflation to fall to 2.7% by mid-2025.

Inflation data shows moderation, though core inflation remains close to the RBA’s target. In January, headline inflation held at 2.5%, while core inflation rose slightly to 2.8%. Housing and food costs continued to drive price pressures, though travel expenses declined. Analysts suggest further cuts may occur if economic conditions weaken.

The RBA revised its economic growth forecast downward, citing weak demand, with GDP at 1.1% in late 2024, projected to recover to 2.0% by mid-2025. The labor market remains tight, with unemployment expected to rise slightly from 4.0% to 4.2% by mid-2027.

Despite a slight uptick in unemployment, Australia’s job market remained resilient in January, adding 44,300 jobs—mostly full-time—pushing annual job growth to 3.5%. Workforce participation hit a record 67.3%, driven by increased female employment.

While the rate cut provides relief to borrowers, the RBA remains hesitant about further reductions. Governor Michele Bullock emphasized a data-driven approach, with investors betting on a higher chance of another cut in May rather than April.

Meanwhile, Australia’s "Big Four" banks—Commonwealth Bank, National Australia Bank, Westpac, and ANZ—cut rates by 25 basis points on home and business loans, with changes taking effect between late February and early March. Treasurer Jim Chalmers is visiting the U.S. for trade talks, seeking exemptions from steel and aluminum tariffs. While no immediate resolution is expected, he remains optimistic.

The U.S. dollar weakened amid falling consumer confidence and bond yields. The Conference Board’s index dropped to 98.3, its lowest since August 2021, reflecting growing economic concerns.

Trade tensions also weighed on sentiment, as U.S. President Donald Trump confirmed that 25% tariffs on Canadian and Mexican imports would take effect in March, potentially disrupting $918 billion in trade. Investors responded by shifting toward safe-haven assets like gold and Treasury bonds. Meanwhile, markets now see a 70% chance of a Federal Reserve rate cut in June, as inflation concerns persist.

As a result, downside pressure on AUD/USD remains strong. The next key support level is likely around 0.6300, with a break below this potentially opening the door to 0.6250. On the upside, immediate resistance has now shifted lower to 0.6400, followed by 0.6450. If the Federal Reserve confirms a rate cut in June, AUD/USD could see a temporary rebound. However, persistent economic uncertainty, weaker Australian growth forecasts, and ongoing trade tensions may continue to weigh on the pair, limiting upside gains.

Data for Technical Analysis (5Min) CFD AUD/USD

Resistance : 0.6332, 0.6334, 0.6338

Support : 0.6324, 0.6322, 0.6318

5Min Outlook    

Source: TradingView

Buy/Long 1 If the support at the price range 0.6320 - 0.6324 is touched, but the support at 0.6324 cannot be broken, the TP may be set around 0.6332 and the SL around 0.6318, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 0.6332 - 0.6336, TP may be set around 0.6342 and SL around 0.6322, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 0.6332 - 0.6336 is touched, but the resistance at 0.6332 cannot be broken, the TP may be set around 0.6322 and the SL around 0.6338, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 0.6320 - 0.6324, TP may be set around 0.6312 and SL around 0.6334, or up to the risk appetite.       

Pivot Points Feb 26, 2025 02:45AM GMT