The Australian Dollar (AUD) dips against the US Dollar (USD) on Tuesday, following a gain of over 0.50% in the previous session. The AUD/USD pair remains under pressure after the interest rate decisions from the Reserve Bank of Australia (RBA) and the People's Bank of China (PBoC).
The RBA board voted to cut the Official Cash Rate (OCR) by 25 basis points, reducing it from 4.1% to 3.85% at the conclusion of its May monetary policy meeting. The move was largely expected by markets.
The PBoC announced a reduction in its Loan Prime Rates (LPRs) on Tuesday. The one-year LPR was lowered from 3.10% to 3.00%, while the five-year LPR was reduced from 3.60% to 3.50%. Given the close trade relationship between Australia and China, any change in the Chinese markets can significantly impact the Aussie Dollar.
The Australian Dollar continues to weaken due to escalating political turmoil in Australia. The opposition coalition fractured after the National Party withdrew from its alliance with the Liberal Party. Meanwhile, the ruling Labor Party returned to power with a stronger and broader mandate, capitalizing on the disarray within the Opposition.
Market attention now turns to the Reserve Bank of Australia's (RBA) upcoming rate decision scheduled for later in the day. The central bank is expected to cut interest rates by 25 basis points, following last week's stronger-than-anticipated employment data.
The AUD/USD pair strengthened on Monday as the US Dollar weakened in the wake of Moody's Ratings downgrading the US credit rating from Aaa to Aa1. This move aligns with similar downgrades by Fitch Ratings in 2023 and Standard & Poor's in 2011. Moody's now projects US federal debt to climb to around 134% of GDP by 2035, up from 98% in 2023, with the budget deficit expected to widen to nearly 9% of GDP. This deterioration is attributed to rising debt-servicing costs, expanding entitlement programs, and falling tax
Source: Fxstreet
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