The Bank of Australia has decided to keep interest rates on hold at 4.1%, as expected, and the RBA has also maintained its status quo in its statement. The key detail is that bankers confirm that monetary policy remains tight and acknowledge that risks to the inflation outlook are still bilateral. However, this does not change the fact that money markets have become convinced that the central bank will cut rates by 25 basis points at its next meeting.
Governor Bullock said that the possibility of a rate cut was not discussed today and that the RBA has not yet made a decision on the 20 May meeting. The Australian CPI data is due on 30 April, so given the uncertainty surrounding tariffs, it seems likely that the RBA will use the time available to maintain an open stance on future decisions. However, in our view, this does not change the market’s assumption of a rate cut in May. This scenario is currently priced in at just over 75%. The probability has increased marginally since last Tuesday.
Source: Bloomberg Financial LP
What's next for AUDUSD?
The pair is currently moving in a short-term uptrend, although in the long term the downtrend is still dominant. After the RBA decision, AUD is stabilizing at the lower support of the previously mentioned uptrend, although it seems that until the market clarifies a specific reaction to Trump's tariff announcements, the spectrum of possibilities for sudden movements is still limited.
Despite Bullock's relatively hawkish comments, markets have not changed their stance on the 75% possibility of a cut in May, which is why we believe that the reaction to Trump's tariffs will be the weight shaping market volatility.
Source: xStation
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