Week of May 19th, 2025: RBA rate cut, Canadian CPI, and AUD/CAD analysis

The Reserve Bank of Australia (RBA) lowered interest rates by 25 basis points on Tuesday, May 20th, 2025, marking their second cut of the year. RBA Governor Michele Bullock emphasized a greater concern for global economic slowdown than inflation. The RBA board also considered a more significant 50 basis point cut, leading traders to anticipate more rate reductions in 2025. The Australian dollar subsequently depreciated by 0.78% against the US and Canadian dollars overnight. Bloomberg analyst surveys reveal that 56.6% of respondents predict another 25 basis point cut at the RBA meeting on July 8th, 2025.

On Tuesday morning, we had the Canadian inflation data, the Canadian CPI M/M dropped from 0.3% to -0.1%. However, the Median CPI Y/Y and Trimmed CPI Y/Y both rose by 0.3% each to 3.2% and 3.1% respectively. At its April 2025 meeting, the Bank of Canada held interest rates at 2.75%, the first pause in its rate cut cycle initiated in June 2024. For the upcoming BOC rate decision on June 4th, 2025, and following the CPI data release, Bloomberg's analyst surveys suggest that 50.8% of participants expect a 25-bps cut, down from 65.1% before the CPI release. Canada’s retail sales data are due later in the week on Friday May 23rd, 2025.

• Price action was trading within a rounding formation (Potential cup and candle) which so far remains incomplete and may have failed to materialize fully, unless price reverses back above its annual PP of 0.9001 which intersects with the rounding formation. (Marked by the blue curve on the above weekly chart)
• On “Liberation day” weekly candle, price action broke and closed below the rounding formation, followed by multiple weeks of low frequency rising candles, taking the price back close to its breakout level.
• Price is currently trading below a confluence of resistance represented by the annual PP of 0.9009 intersection with the rounding bottom formation. And on the other side, it is trading above a confluence of support represented by the intersection of two fast moving averages, EMA9 and SMA9.
• Shooting star candlestick formation, highlighted by red circle on chart.below the annual PP of 0.9009.
• RSI is inline with the price action, currently at its neutral level 50 where it previously found resistance, a shortfall. (Blue line on indicator)
• MACD is inline with price action, the MACD line just crossed above its signal line.