Hawkish RBA Rate Cut Underpins the Australian Dollar, GBP/AUD Holds Steady

February 19, 2025 - Written by David Woodsmith

STORY LINK Hawkish RBA Rate Cut Underpins the Australian Dollar, GBP/AUD Holds Steady

The Reserve Bank of Australia (RBA) cur interest rates by 25 basis points to 4.1-% at the latest policy meeting, in line with consensus forecasts, and the first cut for over four years.

The Australian dollar to US dollar (AUD/USD) exchange rate secured a slight net gain to around 0.6355, with the Pound to Australian dollar (GBP/AUD) exchange rate holding steady at around 1.9835.

MUFG is bullish on the Australian currency; “Overall, the RBA’s cautious message over the need for further easing is supportive for the Australian dollar, which is already one of the top three performing G10 currencies so far this year.”

ING expects the US trade agenda will be a negative factor for the Australian currency.

It added, “We still think a return to 0.62 in AUD/USD is warranted by the end of March.”

The banks, however, have differing views on GBP/AUD by the end of 2025.

ING forecasts GBP/AUD at 1.95 at the end of the year, while MUFG forecasts that the pair will strengthen to 2.03.

The RBA commented, “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”.

There were, however, important caveats with a more hawkish stance; "While today's policy decision recognises the welcome progress on inflation, the Board remains cautious on prospects for further policy easing.”

RBA Governor Bullock was also notably cautious; "I want to be very clear that today's decision does not imply that future rate cuts along the lines suggested by the market are coming.”

She added; "The board needs more data that inflation is continuing to decline before making decisions about the future."

At this stage, markets are less confident that there will be a further two rate cuts this year, potentially supporting the Australian currency.

According to Capital Economics, "All told, we're sticking to our view that the ongoing easing cycle will prove short-lived, and we're forecasting a terminal cash rate of 3.60%.”

According to ING, there is little scope for a further shift; “we doubt markets are ready to shift expectations to only one RBA cut this year, and AUD’s high exposure to the trade story and risk sentiment may quickly overcome any short-term benefits from the RBA’s tone today.”

Nomura is more positive on the global outlook; "While U.S. tariffs on China would highly likely hit Australian economic activity, we believe the market has excessively discounted the Aussie."

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Australian Dollar Forecasts