AUD/USD slumps to near 0.6500 as RBA guides expansionary monetary policy path

AUD/USD falls sharply to near 0.6500 as the RBA guides a dovish monetary policy outlook.
The RBA cut its OCR by 25 bps to 3.6%, as expected.
Investors await the US CPI data for July.

Sagar Dua FXStreet

The AUD/USD pair is down over 0.3% to near 0.6500 during the European trading session on Tuesday. The Aussie pair declines as the Australian Dollar (AUD) underperforms, following the monetary policy announcement by the Reserve Bank of Australia (RBA).

The Australian central bank reduced its Official Cash Rate (OCR) by 25 basis points (bps) to 3.6%, as expected, and guided that the monetary policy path will remain expansionary.

“Forecasts imply cash rates might need to be lower for price stability,” RBA Governor Michelle Bullock said. She didn’t provide a pre-defined interest rate cut path, but kept the door open for another interest rate cut in the next policy meeting. “Would not rule out back-to-back rate cuts,” Bullock said.

Investors brace for more volatility in the Australian Dollar as the domestic labor market data for July is scheduled to be published on Thursday. The Australian economy is expected to have created a fresh 25K jobs, significantly higher than 2K in June. The Unemployment Rate is seen as steady at 4.3%.

Meanwhile, the US Dollar (USD) trades broadly stable, with investors awaiting the United States (US) Consumer Price Index (CPI) data for July, which will be published at 12:30 GMT.

Economists expect the US headline inflation to have grown at a faster pace of 2.8% on year, against 2.7% increase in June. In the same period, the core CPI – which excludes volatile food and energy prices – rose by 3.0%, faster than the prior reading of 2.9%.

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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