AUD/NZD hovers above 1 1/2-week low on dovish RBA prospects

The AUD/NZD currency pair hovered above a fresh 1 1/2-week low of 1.0826 on Wednesday, after a widely anticipated 25 basis-point rate cut by the Reserve Bank of Australia, which was accompanied by concerns over domestic and global headwinds that could dampen the country’s economic outlook.

The central bank said quarterly data indicated that inflationary pressures had eased further. Policymakers also observed a trend toward reduced upside risks of inflation. The RBA’s updated projections now point to headline inflation hovering near the 2% to 3% target range.

Yet, the RBA highlighted international trade tensions as a potential threat to domestic growth. This sentiment added to growing expectations that the rate-cutting cycle may not be over. Weakness in the Australian Dollar reflected these shifting expectations, particularly against the backdrop of sustained uncertainty in the global economy.

“The press conference marked a significant pivot away from the RBA’s prior hawkish focus on a ‘tight’ labor market and upside risks to inflation,” Andrew Boak, economist at Goldman Sachs, was quoted as saying by Reuters.

“We now forecast sequential 25bp cuts in July and August followed by a final cut in November to a terminal rate of 3.1%. Our prior forecast was sequential cuts in July and August to terminal of 3.25%.”

The Aussie also faced pressure from political developments at home, following a fracture in the nation’s opposition coalition. The National Party’s withdrawal of support introduced a fresh layer of political uncertainty, further influencing market sentiment.

In the meantime, on the data front, New Zealand reported a trade surplus of NZD 1.43 billion in April, which compares with a NZD 3 million trade gap in the same month of 2024.

Exports rose 25% year-on-year to NZD 7.8 billion, while imports went up 1.8% year-on-year to NZD 6.4 billion.

The AUD/NZD currency pair was last up 0.17% on the day to trade at 1.0849.