FX.co ★ Aussie Dollar Weakens as Rate Cut Bets Strengthen

The Australian dollar dipped to approximately $0.656 on Tuesday, following a climb to over a seven-month high in the prior session. This decline is influenced by growing anticipation of a rate cut at the Reserve Bank of Australia's meeting in July 2025. Current market sentiment suggests a 95% likelihood that the central bank will decrease the cash rate by 25 basis points to 3.60%, regardless of whether Wednesday's retail sales figures surpass expectations. The argument for monetary easing is strengthened by persistent underperformance in consumer spending, which consistently falls below the RBA’s forecasts. Consequently, there is an increasing market consensus on further rate reductions in the latter half of the year, potentially reducing the cash rate to 3.10% by year-end and possibly to as low as 2.85%, a level considered stimulative. Economically, the manufacturing Purchasing Managers' Index (PMI) dropped to a four-month low in June, indicating declines in production and new orders due to weak export demand and ongoing supply chain challenges.