BA Minutes Reveal Dovish Lean Amid Global Uncertainties
During the Asian session, the Reserve Bank of Australia (RBA) published the minutes from its latest monetary policy meeting. The RBA implemented its second interest rate cut in May, following an initial reduction in February, bringing the official cash rate to 3.85%. The minutes revealed that the central bank had considered three options: no change, a 25 basis point (bp) cut, and a more aggressive 50 bp reduction. While the RBA ultimately opted for the 25 bp cut, the fact that a larger 50 bp reduction was even contemplated is widely perceived as dovish. Although a 50 bp cut was deemed too aggressive at the time, the RBA indicated a readiness for more substantial easing if global turbulence intensifies due to the ongoing trade war. The RBA Board underscored its preparedness to act swiftly should the international situation significantly deteriorate.
The AUD/USD currency pair has been trading in a sideways trend since early May, oscillating between 0.64 and 0.65. Following yesterday's strong rally and a test of the upper consolidation limit, today has seen a notable pullback. This retreat is largely attributed to the rather dovish tone of the RBA meeting minutes. Markets are now pricing in an 80% probability of a rate cut at the RBA's July meeting, with a total of three rate reductions anticipated this year. Furthermore, uncertainty surrounding current US-China relations continues to exert pressure on the Australian dollar. A phone call between President Trump and President Xi is expected later this week.
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We also observe that copper prices have entered a consolidation phase, struggling to break through resistance levels around 9600-9700. Industrial commodity prices hold significant importance for the Australian dollar's performance.
Interestingly, the Australian dollar is losing ground today even as the Chinese Yuan strengthens (inverted axis), leading to the closure of the recent divergence between AUD/USD and an inverted USD/CNH.
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