Australian dollar rebounds, RBA expected to lower rates

The Australian dollar has started the week in positive territory, after losses in three straight trading days. In the European session, AUD/USD is trading at 0.6449, up 0.65% on the day.

RBA widely expected to lower rates

The Reserve Bank of Australia is widely expected to lower the cash rate to 3.85% from 4.1% on Wednesday, which would be the lowest rate since May 2023. The blowout employment report last week, which saw the economy add 89 thousand jobs, hasn't changed the view of the markets about a rate cut.

There are two key factors that support a rate cut on Wednesday. First, core CPI, which is considered a more reliable indicator of inflation trends than headline inflation, cooled to 2.9% y/y in the first quarter. This marked a milestone as it was the first time that core CPI fell within the RBA's target band of 2%-3%.

Second, the wide-ranging US tariffs have roiled the financial markets and dampened global growth. This will mean reduced demand for Australian exports which would hurt the domestic economy. The RBA is expected to lower rates another two or three more times after the expected cut on Wednesday. These projections are fluid, as a permanent tariff deal with China would lessen the pressure on the RBA to lower rates.

China records mixed numbers

China posted mixed data for April to start the week. Industrial Production dropped to 6.1% from 7.7% but beat the market estimate of 5.5%. Retail sales fell to 5.1%, down from 5.9% and below the market estimate of 5.9%. Consumers are anxious about the economic uncertainty, especially the impact of the US-China trade war.

• AUD/USD has pushed above resistance at 0.6409 and 0.6430. Above, there is resistance at 0.6457
• There is support at 0.6382 and 0.6361