Shifting focus to the AUD/USD pair, economists expect the RBA to cut interest rates in November, February, and May, which would lower the cash rate from 3.35% after November’s move to 2.85% by May.
Notably, AMP Chief Economist and Head of Investment Strategy Shane Oliver continues to price in a November cut despite recent data indicating a pickup in economic momentum. Oliver noted that the RBA raised interest rates 13 times before pivoting and has only cut rates by 75 basis points in the current policy easing cycle.
An elevated rate environment and sub-trend real wage growth expose the Aussie economy to downside risks. Concerns of a pullback in spending continue to support expectations of multiple RBA cuts to bolster growth. Meanwhile, markets are also raising expectations of a 50-basis-point Fed rate cut in September and the potential for more cuts in Q4.
Policy divergence signals a narrowing interest rate differential in favor of the Aussie dollar. Upcoming labor market data could delay further RBA rate cuts if participation rises and unemployment unexpectedly falls. Conversely, weaker labor market data is unlikely to trigger more aggressive RBA easing until consumer spending and broader economic activity signal a sharper slowdown.
These key scenarios could dictate if the AUD/USD pair holds above $0.66.
AUD/USD: Key Scenarios to Watch
Bearish AUD/USD Scenario: Weak Aussie data or dovish RBA chatter may push AUD/USD toward $0.66.
Bullish AUD/USD Scenario: Strong Aussie labor market data or hawkish RBA cues could drive AUD/USD toward $0.67.
