RBA Rate Cut Boosts ASX 200, Challenges AUD, Could Drive Home Buying in Australia
Markets were prepared for whatever shocks the RBA might have in store regarding mortgages, the AUD/USD exchange rate, and the ASX 200 index.
Quick overview
- Markets are anticipating the Reserve Bank of Australia's upcoming monetary policy decision, with a 25 basis point rate cut widely expected but potential surprises remain.
- Australia's labor market is strong, with job growth and rising wages complicating the case for aggressive rate cuts.
- A repeat rate cut could boost home buying activity, translating to significant monthly savings for borrowers on mortgages.
- The ASX200 index is poised for a breakout if the RBA adopts a dovish tone, while the AUD/USD faces a critical technical test based on the RBA's decision.
Live AUD/USD Chart
Markets were prepared for whatever shocks the RBA might have in store regarding mortgages, the AUD/USD exchange rate, and the ASX 200 index.
RBA Decision Looms Amid Rate Cut Speculation and Shifting Global Sentiment
As the Reserve Bank of Australia prepares to announce its latest monetary policy decision, markets remain split on the likely outcome. While a 25 basis point rate cut is widely expected, today’s meeting could still deliver surprises. Recent inflation data shows price growth easing back within the RBA’s 2–3% target band, and growing consumer pessimism, as measured by sentiment surveys, signals less risk that a rate cut would unleash an inflationary spending wave.
However, uncertainty remains high. Global tensions—particularly from ongoing geopolitical disputes and volatile trade policies—have cast doubt on the scope of the RBA’s policy easing. Some market participants still see a possibility of a more aggressive 50 basis point cut, though that view has been fading. Several economists have revised their expectations, now forecasting fewer rate cuts for 2025 as domestic strength persists.
Jobs Growth and Wages Limit Room for Aggressive Cuts
Australia’s labor market remains robust. Government data shows that the economy created 125,000 jobs across March and April, with the unemployment rate holding steady at 4.1%—a level it has hovered around for more than a year.
Wages are also on the rise, according to April’s report, which further complicates the case for a deep rate reduction. Adding to this, recent easing of U.S.-China trade tensions supports demand for Australian exports, particularly raw materials, offering another buffer against aggressive monetary easing.
Will Home Buying Activity Pick Up?
Following February’s rate cut to 4.1%, there was a noticeable uptick in housing activity by May. Most Australian banks promptly adjusted variable mortgage rates to reflect the February move, though not all followed suit. Virgin Money notably withheld the full cut, angering its variable-rate clients.
A repeat rate cut today would translate to about $91 in monthly savings on a $600,000 loan over 25 years, according to Canstar data. Director Sally Tindall noted that most lenders are expected to pass on the full reduction to borrowers, with some banks having already trimmed fixed rates ahead of the meeting.
ASX200 Poised for Breakout if RBA Strikes a Dovish Tone
Despite a sharp 16% pullback between February and March—falling from a peak of 8,580 to 7,180 points—the ASX200 index has outperformed many global peers in 2025. Since mid-April, the Australian equity benchmark has staged a strong rebound, closing just 100 points below its all-time high. Should the RBA take a dovish approach in today’s meeting, analysts believe it could be the catalyst to propel the ASX200 toward fresh record territory.
AUD/USD Faces Key Technical Test on RBA Verdict
The Australian dollar has also shown resilience after a steep decline. Following a nearly 8-cent fall in Q4 2024 and another 5-cent dip in early April, the AUD/USD pair rebounded from a brief slip under the psychologically important 0.60 level. While the pair has since stabilized, it remains capped below 0.65.
Currency traders are watching today’s RBA move closely. A smaller, hawkish-sounding cut may lift the Aussie above 0.65, especially as the 100-day simple moving average hovers at that level. On the other hand, a deeper or more dovish surprise could trigger another wave of selling, pushing the pair sharply lower.
AUD/USD Live Chart
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