RBA Governor Michele Bullock recently remarked on the potential impact of tariffs on the Aussie economy. She reportedly stated that the effect of tariffs on China and other Aussie trade partners could affect the Aussie economy, adding:
“What that means for Australia is not 100 per cent clear… the extent to which [our partners] are impacted by the change in the world trading order… does that impact their growth, and therefore, does that impact us?”
Dr. Shane Oliver, Head of Investment Strategy and Chief Economist at AMP, downplayed the potential impact of pharmaceutical tariffs on the Aussie economy. However, on inflation, Dr. Oliver commented:
“With inflation showing signs of stickiness above target this has led to concerns that the RBA may not be able to cut much more if at all.”
Despite the upswing in inflation, he warned against reading too much into the Monthly CPI Indicator, stating:
“The monthly CPI is volatile and goes through hot & cold patches and as we have seen since 2022 and in other countries the fall back in inflation can be quite bumpy. In fact, compared to other similar countries we are doing pretty well. […] More monthly CPI items are continuing to see inflation rates below 2% yoy than above 3% yoy.”
A limited direct or indirect effect of tariffs on the Aussie economy, coupled with softer inflation, nearing the middle of the RBA’s 2-3% target range, would support multiple rate cuts.
AUD/USD: Key Scenarios to Watch
Bearish AUD/USD Scenario: Dovish RBA signals and rising trade tensions may push AUD/USD toward $0.65.
Bullish AUD/USD Scenario: Hawkish RBA rhetoric and easing trade friction could drive AUD/USD toward $0.66.
