On Wednesday, the latest Australian Monthly CPI Indicator showed headline inflation rising by 2.1% year-on-year in May, down from 2.4% in April—marking the slowest annual increase since October 2024. The trimmed mean CPI—the RBA’s preferred core inflation gauge—also eased to 2.4% YoY, its lowest level since November 2021.

RBA Policy Expectations Shift

With inflation slowing significantly and falling to the lower bound of the RBA’s 2–3% target range, major Australian banks are now forecasting that an interest rate cut may come as early as the July meeting. This view is supported by the combination of sustainable disinflation trends and subdued domestic demand.

According to the ASX 30-Day Interbank Cash Rate Futures, market-implied probability for a July rate cut has surged to 89%, reflecting strong conviction that the RBA is poised to ease policy.

With core inflation measures now comfortably within target, this development clears the path for another cut in July.

Market Risk Sentiment in Focus

With a July rate cut now increasingly priced in, expectations of monetary easing have recently weighed on the Australian Dollar. The currency’s weakness is also tied to uncertainty in global risk sentiment, as the AUD remains highly sensitive to shifts in market confidence.

While recent Middle East tensions have pushed crude oil prices higher—a factor that typically supports the AUD due to Australia’s commodity-exporting profile—the broader risk-off mood has overshadowed these gains.

Moreover, global trade risks remain elevated, particularly as the 90-day pause on Trump’s tariffs is set to expire in July. Any developments that reignite market uncertainty or reignite fears of a trade war could further pressure the sentiment-linked Australian Dollar.

As a risk-sensitive currency, the Australian Dollar will likely be influenced by two key upcoming drivers:

• Renewed uncertainty in global trade, particularly if Trump’s tariff measures are reinstated.
• US-China trade tensions, given that both are Australia’s major trading partners. Any deterioration in their relationship would likely weigh on the AUD.

Technical Outlook in Australian Dollar

Turning to the technical front, AUD/USD is currently trading around the 0.6500 level, with recent price action continuing to consolidate within a tight range between 0.6540 and 0.6380. Despite underlying U.S. Dollar softness, the Aussie remains largely range-bound, reflecting a lack of clear directional momentum.

The near-term risks—including expectations of an RBA rate cut and ongoing global trade uncertainties—continue to weigh on the Australian Dollar, capping upside potential. At the same time, U.S. Dollar weakness has provided some support, limiting downside extensions.

A sustained move above 0.6540 would be needed to confirm any meaningful upside breakout, though this scenario would likely require a strong catalyst, such as a significant shift in risk sentiment or a surprise from central bank policy.

Until then, AUD/USD remains technically neutral, with traders watching the 0.6380–0.6540 range for a decisive breakout.

Strong Pound Lifts GBPAUD Toward Key Resistance

On another front, the strengthening British Pound has driven GBPAUD higher for several consecutive sessions, with the pair now approaching a key resistance near the 2.1000 level—the upper boundary of its recent trading range.

As price action nears this resistance zone, volatility may increase, especially if the Australian Dollar continues to underperform. A sustained bullish bias in the Pound, could trigger a breakout above 2.1000.

Traders should closely monitor for a clean break and retest scenario, which may signal further upside extension. Alternatively, failure to breach this level could result in another rejection and return to the established range.

AUD/JPY Consolidates Below Key Resistance

Over AUD/JPY, although recent price action showed signs of a potential reversal, the pair has since moved into consolidation, forming a triangle pattern. It is now facing resistance at the 95.00 psychological level and the 200-day Moving Average.

Traders should keep an eye on a potential breakout in either direction. A clear break above the 200-day EMA and the 95.00 level could signal renewed buying strength in the Australian Dollar against the Yen. If the pair fails to break higher, AUD/JPY may resume its downside movement.

Key Outlook: AUD Remains Passive

Based on the current market outlook, the Australian Dollar could face headwinds from rising expectations of an RBA rate cut and ongoing uncertainty in global risk sentiment. However, the AUD has largely remained range-bound, as there has been no major catalyst or fresh market driver in recent sessions.

From a price action perspective, most AUD pairs appear to be waiting for a breakout, but such a move will likely depend on a strong catalyst to drive direction.