The Reserve Bank of Australia (RBA) is set to announce its first monetary policy decision of 2025 on Tuesday. Market analysts widely expect the central bank to reduce the benchmark interest rate by 25 basis points, marking the first cut in over four years. This anticipated move comes as the Australian economy shows signs of both strength and vulnerability, with employment growth surging and inflation indicators softening.
Recent economic data reveals a robust improvement in Australia's labor market, with annual employment growth climbing to 3.1% in December from November's 2.3%. The nation added 56,300 new jobs in December, and forecasts suggest an additional 20,000 jobs were created in January. However, January's employment data will not be available until after the RBA's announcement, leaving some uncertainty.
Inflation remains a focal point for the RBA. The latest Consumer Price Index (CPI) report showed a slower-than-expected rise in the final quarter of 2024, with the Trimmed Mean CPI increasing by just 0.5%, below the projected 0.6%. This brings the annualized inflation rate to 3.2%, down from the previous 3.5%, yet still above the RBA's target range.
Since November 2023, the RBA has held the Official Cash Rate (OCR) steady at 4.35%. With easing core inflation, the central bank faces pressure to stimulate economic growth through monetary easing, though it is expected to proceed with caution. A recent statement from the RBA acknowledged that "some of the upside risks to inflation appear to have eased and while the level of aggregate demand still appears to be above the economy’s supply capacity, that gap continues to close."
The Australian Dollar's performance reflects these economic dynamics. It has been trading unfavorably against global currencies, influenced by external factors such as US President Donald Trump's fiscal policies, which have led the Federal Reserve onto a more hawkish path.
“Technically speaking, the AUD/USD pair has scope to extend its advance towards the 0.6470 region, where the pair presents multiple intraday highs and lows from the last few months. To reach such an altitude, the pair first needs to overcome the aforementioned intraday high, which is the immediate resistance level. Interim resistance comes next at 0.6430. A dovish outcome could push the pair through the 0.6300 threshold, with additional slides exposing the 0.6230 price zone.” – Valeria Bednarik, Chief Analyst at FXStreet
“The AUD/USD pair peaked at 0.6373 ahead of the announcement, its highest since mid-December. The pair maintains its technically bullish stance amid broad US Dollar (USD) weakness. The Greenback trades on the back foot ever since financial markets understood US President Donald Trump's fiscal measures pushed the Federal Reserve (Fed) into the hawkish path.” – Valeria Bednarik, Chief Analyst at FXStreet
The broader economic landscape presents a complex backdrop for the RBA's decision-making process. Despite an improved employment situation and lowered inflation risks, uncertainties remain, particularly regarding international trade tensions.
“In fact, uncertainty over what US tariffs may mean to the Australian economy will likely be part of the RBA’s announcement,” – Valeria Bednarik, Chief Analyst at FXStreet
Following Tuesday’s announcement, RBA Governor Michele Bullock will address a press conference, providing further insights into the central bank’s strategy and economic outlook. The minutes from this meeting are expected to offer a modest shift in wording compared to previous communications.