RBA set for August rate cut as AUD/USD eyes key 0.6380 support

Australia – All eyes on the RBA

The Reserve Bank of Australia (RBA) heads into its 12 August policy meeting with the market already fully pricing in a 25bps rate cut, taking the cash rate down to 3.6%. This expectation follows a softer run of data, particularly on inflation and employment, that has strengthened the case for policy easing.

Last month, the RBA held rates steady at 3.85%, citing the need for more evidence that inflation was sustainably tracking toward its 2.5% target. That evidence has since emerged:

• CPI: Headline inflation slowed to 1.9% YoY in June, with the trimmed mean easing to 2.1%.
• Labour market: Employment rose by only 2,000 in June (vs. 20,000 expected), with a sharp fall in full-time jobs offset by part-time gains. Hours worked also slipped, hinting at weaker demand.

The data has validated dovish market expectations, but it has not dramatically shifted the outlook beyond August. Markets still expect around 62bps of total cuts by year-end, with another move likely in November or December. We maintain a slightly more hawkish stance, forecasting just one additional cut after August.

AUD/USD outlook:

While the USD side remains dominant in driving price action, the combination of an August cut and global risk sentiment will shape the short-term trajectory. We have revised its year-end AUD/USD forecast higher, now targeting 0.67, reflecting a relatively modest downside risk to the Aussie despite easing expectations.

Key US data and events

Inflation (Tue): Core CPI forecast +0.4% MoM (consensus: 0.3%), with tariff effects and higher vehicle prices in play.

Retail sales and consumer confidence (Fri): Auto sales should lift headline figures, but sentiment remains fragile amid tariff worries and softer job confidence.

US weekly view

July’s inflation data will be the market’s focal point, with potential upside surprises in goods prices due to tariff impacts. However, structural disinflationary forces—such as cooling housing rents—should keep medium-term inflation concerns in check. Retail sales may print solidly, but consumer confidence is showing cracks that could foreshadow softer H2 spending.

Key UK data and events

• Jobs report (Tue): Payroll employment has been slipping for months; risks remain for another weak print, though historical revisions often soften the blow.
• GDP (Thu): Q2 growth likely weaker after Q1’s export surge (ahead of tariffs), but activity probably still grew modestly through spring.

UK weekly view

The Bank of England remains surprisingly calm about the jobs slowdown, but another soft payroll figure could test that stance. GDP may confirm a decelerating but still-resilient economy, with external trade distortions unwinding after the tariff pre-loading in Q1.

AUD/USD technical outlook

The 4-hour AUD/USD chart shows a choppy and overlapping advance in what appears to be wave (1) or (A), followed by the start of a corrective move. The current rebound from point A to B is unfolding within a narrow ascending channel—often a hallmark of a corrective bear flag.

Key technical levels:

• Immediate resistance: 0.6550–0.6560 (channel top)
• Support zone: 0.6380 (potential wave C target)
• Major support: 0.6300–0.6320

Scenario one – Deeper correction:

If price breaks down from the channel, a decline toward 0.6380 could complete a corrective ABC structure. The question is whether this level acts as a launchpad for another leg higher in line with the broader monthly uptrend, or whether the correction extends further.

Scenario two – Early bounce:

A sustained move above 0.6560 would suggest the corrective phase may already be over, opening a path back toward 0.6700 into year-end.

For now, the bias remains for a pullback toward 0.6380 before a potential bounce, but USD dynamics—particularly around U.S. inflation data—could accelerate or truncate that move.