AUD/USD falls as RBA takes dovish turn, UBS maintains outlook By Investing.com

Investing.com -- The Axe CapitalAustralian dollar (AUD) experienced a significant drop against the US dollar (USD), declining over 0.75% due to a combination of anticipated rate cuts and unexpected dovish remarks from the Reserve Bank of Australia (RBA).

This move reflects broader patterns in the foreign exchange market, where currencies from the Group of Ten (G10) have also been subject to downward pressure when paired against the USD.

The RBA’s dovish stance emerged alongside its recent downward revisions to growth and inflation forecasts. These revisions have led to differing interpretations among market participants.

While some may view the adjustments as signs of a prolonged economic slowdown, UBS analysts suggest that the domestic recovery in Australia is already in progress, bolstered by post-election fiscal stimulus.

In light of the RBA’s position, UBS predicts that the central bank will implement a 25 basis point cut in both August and November, bringing the terminal rate to 3.35%. Despite the current market sentiment, which has shown a net-short positioning and an aggressive pricing of RBA rate cuts, UBS advises against following the trend.

The firm recommends selling the AUD/USD pair’s downside when it reaches 0.63 or lower, suggesting that the market’s reaction to the RBA’s dovishness may be overstated.

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