The AUD/USD pair has dropped sharply, trading close to the 0.6500 level during the European session. This fall comes after the Reserve Bank of Australia (RBA) announced a softer outlook, cutting its Official Cash Rate by 25 basis points to 3.6%. The RBA’s decision was expected, but Governor Michelle Bullock signaled that more rate cuts could follow. This has weakened the Australian Dollar, especially with labour market data set to be released on Thursday.

Australian Economy and Labour Market

Job growth expectations for the Australian economy are at 25,000 for July, a significant increase from the 2,000 jobs added in June. The unemployment rate is expected to stay at 4.3%. At the same time, there is growing anticipation for the US Consumer Price Index (CPI) data, which is expected to show a headline inflation rise of 2.8% for July. In the US, a core CPI increase of 3.0% is predicted, excluding the more volatile food and energy prices. This context is important as the RBA finishes one of its eight yearly meetings, where interest rate changes often impact the Australian Dollar. We see a clear divide in central bank policies that creates opportunities for the AUD/USD pair. The Reserve Bank of Australia is now in a cutting phase, which undermines the Australian dollar’s strength. The attention now turns to whether the US will continue with its steady interest rate policy. The RBA’s cut to 3.6% and the possibility of more cuts ahead sends a strong bearish signal for the Aussie dollar. If Thursday’s labour data disappoints with job numbers below 25,000, this could speed up the currency’s decline. As of early August 2025, Australia’s wage growth has shown signs of slowing down, growing at 3.8% annually in the first quarter, giving the RBA more reasons to ease its policy.

US Inflation Data and Market Reactions

This week, US inflation data is the main focus. If the core inflation rate is above the expected 3.0%, it could strengthen the Federal Reserve’s “higher for longer” approach, which would boost the US dollar. On the other hand, a lower than expected figure might provide temporary relief for the Australian dollar. The 0.6500 level has historically been crucial for this pair. In late 2023, a decisive drop below this level caused the currency to fall rapidly toward 0.6300. We are watching for a similar trend if the pair fails to recover the 0.6500 level in the coming days. With significant data events coming up, we’ve noticed increased options premiums, indicating higher volatility expectations. Traders may consider buying put options to hedge against or profit from a further drop below the key 0.6500 support level. The rising cost of these options shows that the market is anticipating a major move. Looking ahead, the most likely direction for the AUD/USD seems to be downward. We consider any rebound in the pair, potentially following a weak US CPI report, as a chance to initiate new short trades. The prevailing trend remains influenced by the RBA’s dovish stance, which is unlikely to change anytime soon. Create your live VT Markets account and start trading now.

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