The Australian Dollar (AUD) continued to weaken following the Reserve Bank of Australia’s (RBA) decision to keep its Official Cash Rate (OCR) unchanged at 4.35% during its latest policy meeting, a move that was widely anticipated by the market [1][2]. Against the US Dollar, AUD/USD traded around 0.7050, paring gains from the previous day and remaining subdued in Asian trading hours [1]. Similarly, the AUD retreated against the New Zealand Dollar, falling back to near 1.2150 from an intraday high of 1.2168 after the RBA’s announcement [2].
The RBA’s decision marked a pause in its monetary-tightening cycle, following three consecutive 25 basis point hikes earlier in the year [2]. The central bank cited cooling inflation and deteriorating employment conditions as reasons for holding rates steady. Specifically, Australia’s Consumer Price Index (CPI) for April came in at 4.2% year-on-year, below both the 4.4% estimate and the prior reading of 4.6%. The unemployment rate also rose to 4.5%, up from expectations and the previous reading of 4.3% [2]. In its statement, the RBA noted that short-term measures of inflation expectations have eased but remain elevated compared to earlier in the year. The bank also highlighted ongoing global oil supply issues, which are expected to keep upward pressure on energy prices and inflation [2].
External factors further pressured the Australian Dollar. Weak economic data from China, a key trading partner, weighed on sentiment: China’s retail sales contracted by 0.6% year-on-year in May (versus expectations of flat growth), and fixed asset investment fell by 4.1%, missing the projected -2%. Although industrial production in China rose by a stronger-than-expected 4.5%, the overall data signaled an uneven recovery, negatively impacting the AUD [1].
Broader market caution also contributed to the AUD’s weakness. The US Dollar remained steady as investors sought safe-haven assets amid ongoing geopolitical tensions, particularly around Iran’s nuclear program and uncertainty regarding the reopening of the Strait of Hormuz. Despite US President Donald Trump’s announcement of a memorandum of understanding to end the regional conflict, skepticism persisted due to the lack of official documentation from both Washington and Tehran [1].
Looking ahead, market participants are focused on the upcoming Federal Reserve meeting, where the Fed is expected to keep its benchmark interest rate unchanged at 3.50% to 3.75%. The press conference by new Fed Chair Kevin Warsh is anticipated for further guidance on US monetary policy [1]. In New Zealand, attention is on the forthcoming Q1 GDP data, with expectations of a 0.9% expansion compared to the previous 0.2% [2].
CONCLUSION
The RBA’s decision to hold rates steady at 4.35%, combined with weak Chinese economic data and cooling domestic inflation, has kept the Australian Dollar under pressure. Market sentiment remains cautious amid global uncertainties, and traders are now looking to upcoming central bank meetings and economic releases for further direction.