AUD/USD extends its losses for the second successive session, trading around 0.7110 during the Asian hours on Friday. However, the downside of the pair could be limited as the Australian Dollar (AUD) may strengthen on cautious sentiment surrounding the Reserve Bank of Australia (RBA) policy outlook.
Traders widely expect the RBA to leave the cash rate unchanged at 3.85% at its March meeting, as policymakers will not receive the full Q1 inflation report until late April. RBA Governor Michele Bullock also emphasized that a patient approach remains appropriate with the economy operating near equilibrium, dampening expectations of an aggressive tightening cycle.
Australia’s hotter-than-expected January inflation reading has strengthened expectations that the RBA could deliver another rate hike in May. Markets are pricing in roughly 40 basis points of additional tightening this year, although many analysts believe the terminal rate will peak near 4.10%, close to the high reached during the post-pandemic inflation surge.
Meanwhile, the AUD/USD pair could find support as the US Dollar (USD) struggles amid ongoing uncertainty surrounding US trade policy. Traders are looking ahead to the release of the US January Producer Price Index (PPI) later on Friday for fresh Federal Reserve (Fed) direction.
US President Donald Trump announced plans to impose a blanket 15% tariff on imports following a Supreme Court decision that invalidated his earlier reciprocal tariff framework. However, US Trade Representative Jamieson Greer indicated that tariffs could be lifted to 15% or higher for several countries in the coming days.
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