AUD/USD slumps to near 0.6500 as RBA guides expansionary monetary policy path

• AUD/USD falls sharply to near 0.6500 as the RBA guides a dovish monetary policy outlook.
• The RBA cut its OCR by 25 bps to 3.6%, as expected.
• Investors await the US CPI data for July.

The AUD/USD pair is down over 0.3% to near 0.6500 during the European trading session on Tuesday. The Aussie pair declines as the Australian Dollar (AUD) underperforms, following the monetary policy announcement by the Reserve Bank of Australia (RBA).

The Australian central bank reduced its Official Cash Rate (OCR) by 25 basis points (bps) to 3.6%, as expected, and guided that the monetary policy path will remain expansionary.

“Forecasts imply cash rates might need to be lower for price stability,” RBA Governor Michelle Bullock said. She didn’t provide a pre-defined interest rate cut path, but kept the door open for another interest rate cut in the next policy meeting. “Would not rule out back-to-back rate cuts,” Bullock said.

Investors brace for more volatility in the Australian Dollar as the domestic labor market data for July is scheduled to be published on Thursday. The Australian economy is expected to have created a fresh 25K jobs, significantly higher than 2K in June. The Unemployment Rate is seen as steady at 4.3%.

Meanwhile, the US Dollar (USD) trades broadly stable, with investors awaiting the United States (US) Consumer Price Index (CPI) data for July, which will be published at 12:30 GMT.

Economists expect the US headline inflation to have grown at a faster pace of 2.8% on year, against 2.7% increase in June. In the same period, the core CPI – which excludes volatile food and energy prices – rose by 3.0%, faster than the prior reading of 2.9%.

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