AUD/NZD declines to one-week low, around mid-1.0800s after RBA's 25 bps rate cut decision

• AUD/NZD drifts lower following the RBA's widely anticipated 25 bps interest rate cut on Tuesday.
• The central bank's acknowledgement of inflation progress keeps the door open for more rate cuts.
• The latest political turmoil in Australia also weighs on the AUD and contributes to an intraday slide.

The AUD/NZD cross attracts some sellers in reaction to the Reserve Bank of Australia's (RBA) policy decision and drops to over a one-week low, around the 1.0860-1.0855 area in the last hour.

As was widely anticipated, the RBA decided to lower the Official Cash Rate (OCR) by 25 basis points (bps) to 3.85% from 4.1% at the conclusion of the May monetary policy meeting. The Australian Dollar (AUD), however, weakens across the board after the RBA said in the accompanying policy statement that the March quarter data provided further evidence that inflation continues to ease.

Moreover, the Board judged that upside risks to inflation appear to have diminished as international developments are expected to weigh on the economy. Furthermore, the updated staff projections showed that the headline inflation is expected to be around the midpoint of the 2-3% range through much of the forecast period, keeping the door open for more rate cuts and undermining the AUD.

Adding to this, the latest political turmoil in Australia turns out to be another factor behind the AUD's underperformance and contributes to the AUD/NZD pair's downfall. With the latest leg down, spot prices now seem to have confirmed a breakdown below a short-term trading range held over the past week or so. This might have already set the stage for a further depreciating move.