Summary
The RBA delivered a widely expected 25bp cut but provided no clear easing bias, citing risks on both sides of the inflation outlook. While disinflation is progressing, a strong labor market has kept policymakers cautious. Markets have trimmed rate cut expectations, now pricing two more this year with the next likely in May. Governor Bullock’s press conference at 3:30 pm AEDT will offer further insights.
Rate Cut Delivered, But Priced
Source: TradingView
The Reserve Bank of Australia (RBA) cut interest rates for the first time since November 2020 in February, lowering the cash rate by 25 basis points to 4.10% in February. Markets were 87% priced for the move, putting focus on the policy statement for clues on the future rate path.
The RBA provided no explicit easing bias, instead noting “risks on both sides” of the inflation outlook.
“The forecasts suggest that, if monetary policy is eased too much too soon, disinflation could stall, and inflation would settle above the midpoint of the target range,” the statement read. “In removing a little of the policy restrictiveness in its decision today, the Board acknowledges that progress has been made but is cautious about the outlook.”
Hawkish Cut as Caution Remains
While the RBA acknowledged that “some of the upside risks to inflation appear to have eased and there are signs that disinflation might be occurring a little more quickly than earlier expected,” it also warned that labor market data had been “unexpectedly strong,” suggesting conditions may be “somewhat tighter than previously thought.”
This was a hawkish cut, with no guarantee of further easing. Before the decision, markets had priced in just over three full 25bp cuts in 2025. With today's cut, that now stands at three. 
Source: RBA
Based on current market pricing, the RBA no longer sees trimmed mean inflation returning to the midpoint of its 2-3% target. It's now forecast to remain at 2.7% from mid-2025 through to mid-2027. GDP growth is expected to be stronger in the second half of this year and next than previously forecast, while unemployment is projected to rise to 4.2% by June and hold there for the next two years.
The updated figures imply the RBA sees less easing than markets over the forecast period, given its mandate is the 2.5% midpoint of the 2-3% target.
Rate Cut Pricing Trimmed
Following the updated forecasts and commentary, swaps markets have removed the risk of a fourth cut this year, now pricing in two more—the next likely in May.
Source: Bloomberg
Governor Michelle Bullock’s post-meeting press conference is at 3:30 pm AEDT. Watch for remarks on the bank’s assumptions around full employment and factors that could alter the rate path.
AUD/USD Bullish Bias Intact
With rates markets only marginally trimming expectations for further cuts this year, AUD/USD volatility has been minimal following the RBA decision.
Source: TradingView
The pair remains above support at .6337, making it a key near-term level for traders. A break and close below this level would complete a three-candle evening star, a pattern often seen around market peaks. Below .6337, support levels to watch include .6300, the 50DMA, and .6238.
If .6337 holds, a retest of the October 2022 uptrend near .6400 is possible. This level previously acted as support and may now turn into resistance. A break above would be significant, bringing .6450 and .6550 into focus for bulls.
Momentum indicators like RSI (14) and MACD remain bullish, favouring an upward bias.