The Australian dollar tumbled sharply on Tuesday, extending its decline against the U.S. dollar and emerging as the worst-performing currency among the G10 group. The selloff followed the Reserve Bank of Australia’s (RBA) decision to lower interest rates by 25 basis points to 3.85%—the lowest level since May 2023—as policymakers responded to cooling inflation pressures.
Key Drivers of AUD Weakness
Dovish RBA Shift: The central bank’s rate cut signals growing concerns over slowing economic momentum, reducing the appeal of Aussie-denominated assets.
Inflation Cooldown: With domestic price pressures easing faster than expected, traders anticipate further policy easing, weighing on the currency.
Broad USD Strength: The U.S. dollar’s resilience amid shifting Fed expectations exacerbated the AUD’s drop.
The AUD’s underperformance highlights diverging monetary policy paths between the RBA and other major central banks. Analysts warn that additional weakness could unfold if global risk sentiment deteriorates or if domestic economic data disappoints. Traders will now scrutinize upcoming employment and retail sales figures for clues on whether the RBA might deliver more cuts this year.
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