Australia

The RBA just turned dovish, but the macro data do not justify many more cuts. We unpack why Australia’s strong labor market and sticky inflation limit the scope for further easing.

The easing bias remains, but not all central banks are equal. This Central Bank Monitor update reveals who is ready to cut more and who is still pretending not to.

Following the escalation of the US-China trade war, the Reserve Bank of Australia is priced to cut rates most aggressively among its G10 peers. Across the Tasman Sea, the Reserve Bank of New Zealand has already cut rates aggressively, but the economy has yet to respond to this policy easing. This Special Report will examine the prospects of monetary policy for both of these central banks. 

This report looks at the FX implications of the Trump tariffs, and the review of our Q1 trades.

Overnight, the RBA cut the cash target rate for the first time since 2022, marking the beginning of the policy easing cycle in Australia. However, the RBA will proceed cautiously with further rate cuts, given a tight labor market and still elevated services inflation. This will keep Australian government bond yields elevated versus global yields, benefitting the Australian dollar.