Australian dollar falls after RBA interest rate decision

The Australian dollar declined on Tuesday, May 20th, following the Reserve Bank of Australia's (RBA) decision to cut interest rates. Ongoing global risks associated with trade tensions have fueled expectations of further policy easing.

The RBA lowered the interest rate by 25 basis points to 3.85%. This move followed successes in reducing inflation and addressed global uncertainty stemming from US tariffs. Investors anticipate two more similar cuts this year.

The Australian dollar fell 0.5% to $0.6428, partially offsetting a 0.8% gain from the previous session when Moody's downgrade pressured the USD.

Australian three-year bond prices rose 9 points to 96.440, while 10-year bond yields fell 5 basis points to 4.455%.

The RBA released its economic outlook, projecting a slight decrease in inflation but an increase in unemployment even with an 85-basis-point rate cut.

Core inflation dropped to a three-year low of 2.9%, within the RBA's target range of 2–3% and a significant reduction from the 6.8% recorded at the end of 2022.

Investors now expect RBA rates to reach a low of 3.0% or 2.85% by August.