AUD/USD Price Amid Diverging Central Banks Policies

Reserve Bank of Australia – Cautious Interest Rate Cuts

The Reserve Bank of Australia cut interest rates by the expected 25 basis points at its meeting today, bringing them to their lowest level in nearly two years. The Board justified the move by citing significantly lower inflation, which has remained steady at 2.4% since the fourth quarter of last year, making this step appropriate at this time.

While Australian economic growth has been trending upward since the second quarter of last year, the risks associated with the trade war and the uncertainty it generates could limit further improvement (particularly since China is one of Australia’s key trading partners). The Reserve Bank Governor expressed surprise at the scale of the tariffs announced by the Trump administration in early April.

As a result, the Reserve Bank may continue easing rates, but the approach is expected to be cautious. This means the Bank will likely require more data before deciding at its July meeting. Currently, markets are pricing in a 50% probability of another rate cut at that meeting. That said, the Reserve Bank of Australia is anticipated to lower interest rates at least two more times this year.

Federal Reserve – Delayed Interest Rate Cuts

Despite President Trump’s repeated calls for immediate rate cuts, the Federal Reserve has not responded. Instead, Fed officials are focused on evaluating the effects of tariffs on the U.S. economy once the negotiation window closes and will act accordingly.

The key reason for this delay is the risk of runaway inflation. Tariffs could reduce the supply of imported goods, potentially driving prices higher. If interest rates were cut prematurely, increased liquidity could worsen this inflationary pressure. Therefore, the Federal Reserve may wait until its September meeting to gather sufficient data before deciding on a rate cut of 25 basis points, or possibly 50 basis points, as seen last year.

Australian Dollar Corrects Lower

On May 14, the AUD/USD pair formed a lower high and failed to breach the high end of the current trading zone located between 0.6501 and 0.6266. As a result, the pair may be heading to revisit the low end of the current trading zone.

A daily close below the low end of the zone would signal the potential for continued downside toward 0.6083. In this case, the support level at 0.6170 should be monitored closely.

Levels to Consider in a Reverse Scenario

A successful daily close above the high end of the zone at 0.6504 would indicate a bullish comeback, potentially leading the price to a move toward 0.6683. However, in this scenario, the resistance level at 0.6567 should be closely watched.

AUD/USD price – Daily Chart

Chart Source: ADSS Platform