AUD/NZD declines to one-week low, around mid-1.0800s after RBA’s 25 bps rate cut decision

AUD/NZD drifts lower following the RBA’s widely anticipated 25 bps interest rate cut on Tuesday.
The central bank’s acknowledgement of inflation progress keeps the door open for more rate cuts.
The latest political turmoil in Australia also weighs on the AUD and contributes to an intraday slide.

Haresh Menghani FXStreet

The AUD/NZD cross attracts some sellers in reaction to the Reserve Bank of Australia's (RBA) policy decision and drops to over a one-week low, around the 1.0860-1.0855 area in the last hour.

As was widely anticipated, the RBA decided to lower the Official Cash Rate (OCR) by 25 basis points (bps) to 3.85% from 4.1% at the conclusion of the May monetary policy meeting. The Australian Dollar (AUD), however, weakens across the board after the RBA said in the accompanying policy statement that the March quarter data provided further evidence that inflation continues to ease.

Moreover, the Board judged that upside risks to inflation appear to have diminished as international developments are expected to weigh on the economy. Furthermore, the updated staff projections showed that the headline inflation is expected to be around the midpoint of the 2–3% range through much of the forecast period, keeping the door open for more rate cuts and undermining the AUD.

Adding to this, the latest political turmoil in Australia turns out to be another factor behind the AUD's underperformance and contributes to the AUD/NZD pair's downfall. With the latest leg down, spot prices now seem to have confirmed a breakdown below a short-term trading range held over the past week or so. This might have already set the stage for a further depreciating move.

Economic Indicator

RBA Interest Rate Decision

The Reserve Bank of Australia (RBA) announces its interest rate decision at the end of its eight scheduled meetings per year. If the RBA is hawkish about the inflationary outlook of the economy and raises interest rates it is usually bullish for the Australian Dollar (AUD). Likewise, if the RBA has a dovish view on the Australian economy and keeps interest rates unchanged, or cuts them, it is seen as bearish for AUD.

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