FX.co ★ Australian Dollar Pares Losses

The Australian dollar experienced a surge to approximately $0.642 on Monday, recovering previous losses as investors turned their attention to the forthcoming policy decision by the Reserve Bank of Australia (RBA). Expectations are high that the RBA will resume its easing cycle, likely opting for a 25 basis point reduction in the benchmark interest rate on Tuesday. Nonetheless, recent robust labor market data has lessened the anticipation of further cuts. Additionally, the de-escalation in the US-China trade tensions has diminished the likelihood of a more aggressive policy approach from the central bank. Consequently, market projections for rate cuts by the end of the year have been adjusted to 75 basis points, a reduction from the 100 basis points forecast several weeks ago. Furthermore, April's decline in Chinese retail sales points to continuing weaknesses in consumer demand, raising concerns for Australia’s largest trading partner and signaling potential risks to export performance. Despite these concerns, there is some relief provided by stronger than anticipated industrial output and a decrease in unemployment rates.