Forexlive European FX news wrap: RBA cut rates as expected, AUD falls on 50 bps debate

• The PBoC reiterates implementation of loose monetary policy

• What are the current interest rates expectations for the major central banks?
• ECB’s Knot: Mid-term inflation outlook too uncertain to say whether we need a June cut
• More from BoE’s Pill: We should not be dependent on how data turns out
• Japan mulls accepting US tariff reduction, not exemption – Kyodo
• Iran’s Supreme Leader Khamenei: I don’t think nuclear talks with the US will be successful
• BoE’s Pill: Vote against interest rate cut was a ‘skip’ within a continuing withdrawal
• BoJ: Some members said JGB market functionality improving as a trend due to BoJ’s taper
• ECB’s Schnabel: Disinflation is on track, but new shocks are posing new challenges
• Germany April PPI -0.6% vs -0.3% m/m expected
• RBA Governor Bullock: Did discuss 25 bps or 50 bps cut
• RBA Governor Bullock: Must now keep inflation down, well placed to do so
• RBA lowers the cash rate target to 3.85% vs 4.10% prior as widely expected

It’s been another light session in terms of data and news releases. The only highlight was the RBA policy decision where the central bank cut interest rates by 25 bps as expected and lowered growth and inflation forecasts.

The AUD fell initially on the dovish forecasts but eventually bounced back. The Aussie dollar couldn’t sustain the pressure though after RBA’s Governor Bullock mentioned that they debated between a 25 and 50 bps cut. That sent the AUD to new lows and the market increased the easing expectations for 2025.

Elsewhere, we got some ECB speakers that are now starting to change their tone around the need for further cuts. The hawks are particularly wary of overdoing it on rate cuts and not reach their inflation target on a sustained basis.

In the American session, we have the Canadian CPI
report where the Trimmed Mean Y/Y is expected at 2.9% vs. 2.8% prior and
the Median Y/Y is seen at 2.9% vs. 2.9% prior. The market is pricing a
62% chance of a 25 bps cut at the upcoming meeting and a total of 47 bps
of easing by year-end. A higher than expected reading could see the
market price out a rate cut at the upcoming meeting.

We
will also have some more Fedspeak and the focus will be on potential
hawkish comments as the market is now back at pricing just two rate cuts
in 2025. From now on, we will either price in more cuts or less cuts
than expected and that will move markets.

This article was written by Giuseppe Dellamotta at www.forexlive.com.