Why Is Gold in Focus Right Now?Throughout early 2025, gold has surged to record highs, breaching $3,400 an ounce for the first time in history. For newer traders, this may seem like a “blue-sky” breakout without precedent. For experienced market participants, it raises a more practical and important question, i.e. what is driving this rally, and is it sustainable?Understanding the fundamental and technical context behind such moves helps us not only trade the present but plan for what may come next, which can guide us in the decisions we make with our trading action.This article aims to build upon recent outlook webinars that we have delivered recently, which have waved the bullish flag throughout. However, I must admit to having been surprised at the velocity of the rally.We will try to unpick key drivers as well as analyse what could be next and why.What’s Driving the Gold Rally in 2025?Let’s take a look at the main contributing factors that are currently supporting the upward momentum in gold prices:1. Rising Global Uncertainty and Geopolitical RiskPolitical instability, as it has historically, remains a strong macro backdrop for gold. Recent flare-ups in geopolitical conflict — particularly in Eastern Europe and the Middle East — have returned “safe haven” flows back into focus. This is typical during periods when traditional risk assets like equities face greater downside volatility.Additionally, the somewhat turbulent start (even more so than many predicted) to the new U.S. administration has introduced an element of policy uncertainty, particularly around trade, inflation and the impact of economic growth. The possibility of further tariffs or fiscal tightening reinforces gold’s appeal as a form of protection.Key Point: Traders need to monitor not just existing conflicts, but also the market perception of risk. Gold often responds not to what is happening, but to what investors fear might happen.2. US V China – trade war brewing?Tariff dramas have been the major market chatter and sentiment changer over the last few weeks. On top of general broad international tariffs, and to pause or not to pause decisions, the major attention is, and likely to continue to be, the escalation of tariffs between the U.S. and China has pushed inflation expectations higher. While inflation has generally cooled since its 2022–2023 peaks, cost-push factors such as tariffs can reintroduce price pressures, particularly on imports.Central banks globally are including tariffs within a rate decision narrative, but no central bank is more in focus, of course, than the Federal Reserve. In Trump's last presidency, the current Fed chairman Jerome Powell came under fire for rate policy, and already, it was noteworthy that the current president aimed a shot at him once again. The market is aware that inflationary shocks are not off the table once tariff impact starts to bite at importer costs in the US, and the “priced in” rate cut that is likely to occur in June is still some time away, and the certainty that this may happen may start to waver. Gold has historically performed well when real yields (interest rates adjusted for inflation) fall or remain negative.Key Point: Watch CPI data closely. If inflation expectations start to climb again due to trade-related costs, gold may continue to benefit.3. U.S. Dollar WeaknessThe U.S. dollar index (DXY) has declined to multi-year lows, making gold more attractive to non-U.S. investors. This is a classic inverse relationship — as the dollar falls, gold often rises.A weaker dollar could potentially indicating that the market could be pricing in a more dovish Federal Reserve, with rate cuts potentially on the table later in the year, However, more likely in this case, the dramatic drop in the USD, which this week hit 3 year lows, is more likely due to concerns about growth and even the perceived chance of recession.At the time of writing, the earnings season is ramping up, and despite Q1 results so far being relatively positive, we are already seeing concerns expressed (as is often the case with uncertainty) relating to forward guidance. This, of course, plays into the slowdown narrative. This week's PMI data feels as though it may have even more importance than usual.Key Point: Gold traders should always include USD direction in their macro framework. It often amplifies or suppresses broader trends in the metal.4. Central Bank and Institutional DemandAnother major support for gold is the persistent demand from central banks, particularly in emerging markets such as China and Turkey. These institutions are increasingly shifting reserves into gold as part of long-term diversification away from USD assets.Evidence suggests ETF flows have also picked up, showing increasing but not outrageous levels, suggesting the move is still institutional in nature rather than purely speculative.Key Point: As long as institutional and central bank demand remains steady or rising, gold has a structural reason to be supported underneath current price levels.What the Technical Picture Is Telling UsWhile fundamental drivers continue to support gold, the technical setup also tells an important story — one that can help traders decide whether to stay in, take partial profits, or prepare for tactical re-entries after any price pullback. Let’s explore the technical picture in a bit more detail.

• Gold’s Long-Term Trend Structure Remains Intact

Gold has been making a consistent series of higher highs and higher lows since mid-2023. This trend has been confirmed across multiple timeframes, including the daily and weekly charts — an important feature for position traders.Currently, price is well above both the 50-day and 200-day exponential moving averages (EMA), which have now turned upward and widened — a classic sign of trend strength and directional bias. When prices pull back in strong trends, these EMAs often serve as dynamic support levels.

• Momentum: The weekly RSI is elevated (above 75), which suggests gold may be in overbought territory in the short term.

What About RSI Being Overbought?One of the most common misunderstandings among newer traders is how to interpret an elevated RSI (Relative Strength Index), particularly when it crosses above the traditional 70 level.RSI above 70 does not automatically mean 'sell' — especially in strong trends, so this merits a little further discussion.Here’s why a high RSI may not be a problem:

1. Context matters: In trending markets, RSI can remain elevated (above 70 or even 80) for extended periods without any meaningful pullback. This is often referred to as a 'momentum breakout' condition.
2. Confirmation from volume: If rising RSI is accompanied by increased volume, it suggests that momentum is being supported by participation, not exhaustion. Currently, weekly volume has expanded on breakout weeks, supporting the move.
3. New highs with RSI > 70 are actually bullish: A strong market making new highs and registering overbought readings usually reflects strength, not vulnerability — unless divergence begins to appear.

Key Point: Use RSI as a momentum gauge, not a reversal trigger in isolation. In this case, RSI supports the idea that gold is strong, not yet stretched to the point of reversal.

• Next Targets: Many technical analysts are watching $3,500 and $3,650 as key psychological and Fibonacci extension levels. A sustained break above $3,400 would likely bring these into view.
• Support Levels: If price retraces, $3,200 and $3,050 are likely areas where buyers may step back in, especially if the macro story remains intact.Key Point: Momentum remains strong, but even in trending markets, corrections are normal. Having a plan for where to re-engage is just as important as knowing when to stay out.
• What Would a Healthy Pullback Look Like?

Even the strongest trends pause. If gold does retrace in the short term, the nature of the pullback is more important than whether it happens.Signs of a healthy pullback include:- Controlled decline in decreasing volume- Price respecting prior breakout zones — e.g., $3,250–$3,280- Holding dynamic support like the 20-day or 50-day EMA- Reversal candle patterns near support (e.g., hammer, bullish engulfing)Key Point: In strong markets, pullbacks are often shallow and short-lived. They can be opportunities to scale in, provided the structure remains intact.Sentiment and Positioning: Are Traders Too Bullish?It’s important not to get swept up in price action alone. The COT (Commitments of Traders) report can provide valuable insight into whether markets are approaching overly crowded levels.

• Large Speculators have increased their net long positions, but not yet at levels seen in major historical peaks.
• Retail traders have only recently started to increase exposure, which suggests the move is not fully mature.
• ETF inflows, while rising, are still below the aggressive flows seen in 2020.Key Point: Current positioning suggests there may still be room to run, especially if new catalysts emerge. However, if positioning becomes too lopsided, be ready for faster and sharper corrections.

What Could Change the Narrative….Risks to Watch?Even with a strong bull case, traders must stay aware of what could derail gold’s momentum:Risk Event #1: Sudden USD reboundImpact on Gold: Could trigger a sharp pullbackRisk Event #2: Hawkish Fed surpriseImpact on Gold: Logically higher real yields = bearish gold due to USD impact – however, gold’s role as an inflation risk is likely to offset this.Risk Event #3: De-escalation of trade/geopolitical tensionsImpact on Gold: Safe-haven demand may soften if this is part of the reason for the current price rise. However, with other factors predominating price moves for right now, again, this may not be critical.Risk Event #4: Profit-taking and reversal in momentumImpact on Gold: Could create a short-term topKey Point: Risk doesn’t always mean reversal — but it does mean adjusting trade size, stops, and expectations when conditions change.Summary: Stay Informed, Stay DisciplinedGold’s rise in 2025 has been impressive, but it hasn’t been irrational. The macro backdrop, institutional support, and technical structure all support the trend.However, markets rarely move in straight lines, and traders should stay ready for both continuation and correction scenarios.Success is likely to lie in applying consistency in the management of profit and capital risks, as well as having a clear method to re-enter as appropriate. consistently while remaining adaptable to changing conditions.Traders should view the current gold move as a reflection of persistent macro themes and technical support rather than any sort of “bubble”. Whether you’re already long or waiting for a retracement, your decision-making should be rooted in having a clear and unambiguous trading plan and, of course, the discipline of follow-through in the actions you take.

We have deliberately waited a few days before commenting on “Liberation Day” and the fallout that would come from President Trump’s new tariffs regime.It will go down as just another historical period of heightened volatility, uncertainty, risk, and a whole manner of market turmoil. This is why we wanted to put what is happening right now into some context. (If that is possible, considering how volatile the period is and how erratic and how quick the president's manner can change.)US markets have seen this kind of violent move only three times since the 1950s. The S&P’s over 10 per cent drop in the final two sessions of the week following President Trump's "Liberation Day" tariff announcement has it in rare company – and not in a good way - October 1987 (Black Monday), November 2008 (Global Financial Crisis), March 2020 (COVID-19).So, why such a reaction?The market reaction reflects not the ‘shock’ but the scale and brevity of the tariffs. A 10% across-the-board tariff was broadly expected. There were some calculations as much as 15 to 20% judging by the net $1 trillion in and out of the federal government revenue. (This is the impact of DOGE and other government spending cuts coupled with the tariffs now in place that will offset the promised 0% personal income tax for those earning up to US$150,000)But what markets didn’t see coming was the country-specific layer. Take China as an example; the additional 34% reciprocal tariff on Chinese goods pushed the total to 54%. With other measures factored in, the effective burden could approach 65%.Then there were the tariffs that were tied to trade deficits, hitting Japan, South Korea and most emerging markets between the eyes (i.e. Vietnam).The EU saw a 20% rate, which was within expectations, while the UK, Australia, New Zealand and others landed at 10%. Canada and Mexico were spared, as was Russia, North Korea and Belarus, interestingly enough.Energy was excluded, which is unsurprising considering Trump’s goal of getting energy down, down and staying down. Pharmaceuticals and semiconductors were also carved out, however, this is more down to the probability of more targeted action like that of steel and aluminium.Now, what is different about this market shock and risk off trading is that it would send funds flowing to the US dollar, ratcheting it higher. But not this time. The dollar weakened against the euro. Theories as to why range from Europe’s lighter tariff load to euro-based investors pulling money out of the US. The same could be said of the Swiss Franc.All this leads to an average effective tariff rate of around 22%. That number will likely climb once product-specific tariffs on areas like pharmaceuticals and lumber are formalised. Some of this may be negotiated down, but not soon, and the possibility of tit-for-tat retaliation like China has now entered into could actually see it going higher still as the President looks to outdo country responses.The broader uncertainty this introduces to the US outlook is now at its highest since early 2020 and has the markets pricing in 110 basis points of Fed rate cuts this year – a near 5 cut call shows just how unprecedented this is.In fact, in no time in living memory has a developed economy lifted trade barriers this aggressively or abruptly. What has been implemented is textbook economics 101 supply-side shock.Input costs go up, finished goods get pricier, and the ripple effects hit margins and employment. Expect to see this in the next six months.Expect core PCE inflation to finish the year at 3.5% —nearly a full percentage point higher than the consensus forecast from just a week ago.Real GDP growth is forecast to slow to 0.1% on a quarter-on-quarter basis. That path may be volatile as Q1 could look worse due to soft consumption and strong imports, with a mechanical bounce in Q2.What has been lost in the chaos of last Thursday and Friday’s trade was the March Non-farm payrolls jobs print came in at 228,000, which was above consensus, the caveat being it is less so after downward revisions to prior months.Hospitality hiring was strong, likely helped by a weather rebound that won’t repeat. Government payrolls are holding steady for now, but cuts are coming. Layoffs in defence and aerospace (DOGE) are already underway, and tariffs will act as a brake on new hiring. Expect softer reports ahead.Unemployment ticked up slightly to 4.15%, reflecting a modest rise in participation. That’s still within range, giving the Fed cover to hold off on immediate action. But if job losses build pressure on the Fed to act, it will increase quickly.The consensus now is for the first rate cut of this cycle to start in May, triggered by softer April payrolls and earlier signs of deterioration in jobless claims and business sentiment.Zooming out from just a US-centric point of view, the macro standpoint is just as bad if not worse. The scale of tariffs adds pressure on industrial production, trade volumes and cross-border investment.That’s feeding into commodity markets, where the outlook has turned more cautious.Brent is expected to fall into the low US$60s as trade frictions and oversupply build. LNG looks weaker too, with soft Asian demand and less urgency in Europe to restock. Iron ore is more exposed to China, and the reciprocal tariffs put a vulnerability into the price due to the broader global slowdown and higher prices to the US.Looking at China specifically, infrastructure remains a key policy lever that would offset the possible loss of demand in aluminium, copper, and steel. Monetary indicators are beginning to turn, suggesting the start of a new easing cycle. It also suggests that policy remains inward-facing, and a focus on domestic stability would mean a metals-heavy growth path. Thus suggesting Australia could be the ‘lucky country’ once more and could escape the full burden of the global upheaval.In short, the global reaction isn’t just about tariffs. It’s about what happens when policy shocks collide with already-fragile global demand, and central banks are forced to navigate inflation that’s driven by politics, not just price cycles.This is the question for traders and investors alike over the coming period.

We would suggest that right now Markets are underestimating the impact of April 2 US Reciprocal Tariffs – aka Liberation Day monikered by the President.There is consistent and constant chatter around what is being referred to as The Dirty 15. This is the 15 countries the president suggests has been taking advantage of the United States of America for too long. The original thinking was The Dirty 15 for those countries with the highest levels of tariffs or some form of taxation system against US goods. However, there is also growing evidence that actually The Dirty 15 are the 15 nations that have the largest trade relations with the US.That is an entirely different thought process because those 15 countries include players like Japan, South Korea, Germany, France, the UK, Canada, Mexico and of course, Australia. Therefore, the underestimation of the impact from reciprocal tariffs could be far-reaching and much more destabilising than currently pricing.From a trading perspective, the most interesting moves in the interim appear to be commodities. Because the scale and execution of US’s reciprocal tariffs will be a critical driver of commodity prices over the coming quarter and into 2025.Based on repeated signals from President Trump and his administration, reinforced by recent remarks from US Commerce Secretary Howard Lutnick. Lutnick has indicated that headline tariffs of 15-30% could be announced on April 2, with “baseline” reciprocal tariffs likely to fall in the 15-20% range—effectively broad-based tariffs.The risk here is huge: economic downturn, possibilities of hyperinflation, the escalation of further trade tensions, goods and services bottlenecks and the loss of globalisation.This immediately brings gold to the fore because, clearly risk environment of this scale would likely mean that instead of flowing to the US dollar which would normally be the case the trade of last resort is to the inert metal.The other factor that we need to look at here is the actual end goal of the president? The answer is clearly lower oil prices—potentially through domestic oil subsidies or tax cuts—to offset inflationary pressures from tariffs and to force lower interest rates.‘Balancing the Budget’Secretary Lutnick has specified that the tariffs are expected to generate $700 billion in revenue, which therefore implies an incremental 15-20% increase in weighted-average tariffs. We can’t write off the possibility that the initial announcement may set tariffs at even higher levels to allow room for negotiation, take the recently announced 25% tariffs on the auto industry. From an Australian perspective, White House aide Peter Navarro has confirmed that each trading partner will be assigned a single tariff rate. Navarro is a noted China hawk and links Australia’s trade with China as a major reason Australia should be heavily penalised.Trump has consistently advocated for tariffs since the 1980s, and his administration has signalled that reciprocal tariffs are the baseline, citing foreign VAT and GST regimes as justification. This suggests that at least a significant portion of these tariffs may be non-negotiable. Again, this highlights why markets may have underestimated just how big an impact ‘liberation day’ could have.Now, the administration acknowledges that tariffs may cause “a little disturbance” (irony much?) and that a “period of transition” may be needed. The broader strategy appears to involve deficit reduction, followed by redistributing tariff revenue through tax cuts for households earning under $150K, as reported by the likes of Reuters on March 13.The White House has also emphasised a focus on Main Street over Wall Street, which we have highlighted previously – Trump has made next to no mention of markets in his second term. Compared to his first, where it was basically a benchmark for him.All this suggests that some downside risk in financial markets may be tolerated to advance broader economic objectives.Caveat! - a policy reversal remains possible in 2H’25, particularly if tariffs are implemented at scale and prove highly disruptive and the US consumer seizes up. Which is likely considering the players most impacted by tariffs are end users.The possible trades:With all things remaining equal, there is a bullish outlook for gold over the next three months, alongside a bearish outlook on oil over the next three to six months.Gold continues to punch to new highs, and its upward trajectory has yet to be truly tested. Having now surpassed $3,000/oz, as a reaction to the economic impact of tariffs. Further upside is expected to drive prices to $3,200/oz over the next three months on the fallout from the April 2 tariffs to come.What is also critical here is that gold investment demand remains well above the critical 70% of mine supply threshold for the ninth consecutive quarter. Historically, when investment demand exceeds this level, prices tend to rise as jewellery consumption declines and scrap supply increases.On the flip side, Brent crude prices are forecasted to decline to $60-65 per barrel 2H’25 (-15-20%). The broader price range for 2025 is expected to shift down to $60-75 per barrel, compared to the $70-90 per barrel range seen over the past three years.Now there is a caveat here: the weak oil fundamentals for 2025 are now widely known, and the physical surplus has yet to materialise – this is the risk to the bearish outlook and never write off OPEC looking to cut supply to counter the price falls.

The biggest move in 80 years We need to start with what is probably the biggest structural change Europe has seen since the formation of the European Union to its biggest member – Germany. For the first time in 80 years Germany’s Bundestag has voted to lift the country's “debt brake” to allow the expansion of major defence and infrastructure spending under new leadership of incoming Chancellor Frederick Merz. We need to illustrate how much spending Germany is going to do in defence it is up to €1 trillion over the forward estimates. 5 billion of which is to support Ukraine for this year and to continue to put European pressure on Russia.

It's also a country it has been highly sceptical of stimulating itself having suffered through the Weimar government of the 1920s and 30s that led to hideous hyperinflation and drove the country to political extremism. It is also clearly in response to Washington’s change of tact regarding Europe and the war in Ukraine. As it is now clear that Europe who need to defend itself and that NATO is becoming a dead weight that can no longer be relied upon.

Couple this with what the EU is doing itself. Last week we saw the head of the EU Ursula von der Leyen, delivered a speech that stated the continent needed to: “rearm and develop the capabilities to have credible deterrence.” This came off the back of the EU endorsing a commission plan aimed at mobilising up to €800 billion in investments specifically around infrastructure and in turn defence. The plan also proposes to ease the blocs fiscal rules to allow states to spend much more on defence.

If you want to see direct market reactions to this change in the continent’s commitments – look no further than the performance of the CAC40 and DAX30. Both are outperforming in 2025 and considering how far back they are coming compared to their US counterparts over the past 5 years – the switch trade may only be just beginning. What is also interesting it’s the limited reactions in debt markets.

The 10-year Bund finished marginally higher, though overall European bond markets saw limited movement. Bonds rallied slightly following confirmation of the German stimulus package. Inflation swap rates were little changed, while EUR swaps dipped, particularly in the belly of the curve.

EUR/USD ticked up 0.2% to $1.0960. Hopes for a potential Russia-Ukraine cease-fire also offered some support to the euro but has eased to start the weeks as Russia looks to break the deal before it even begins. Staying with currency impactors – The US saw a range of second-tier U.S. economic data releases last week all came in stronger than expected.

Housing starts jumped, likely benefiting from improved February weather. Industrial production rose 0.7% month-over-month big beat considering consensus was for a 0.2% gain while manufacturing jumped 0.9%. Import and export prices also exceeded forecasts, prompting a slight upward revision to core PCE inflation estimates, mainly due to higher-than-expected foreign airfares.

These upside surprises led to a brief sell-off in treasury bills but yields soon drifted lower as equities struggled. Looking ahead to the FOMC decision, expectations remain for the Fed to hold steady. Chair Powell has emphasised that the U.S. economy is in a "good place" despite ongoing uncertainties and has signalled there’s no rush to cut rates.

The Fed’s updated projections are expected to show a slight downward revision to growth, a more cautious view on GDP risks, and slightly higher inflation forecasts. As for rate cuts, the median expectation remains two 25bps cuts in 2025 and another two in 2026, with markets currently pricing around 56bps of easing next year. All this saw the U.S. dollar trade mixed against G10 currencies as local factors took centre stage.

Despite a weaker risk tone in equities, the DXY USD Index edged down 0.1%. The Aussie and Kiwi dollars softened (AUD/USD -0.3%, NZD/USD -0.4%) as risk sentiment deteriorated. The AUD will be interesting this week as we look to the budget that was never meant to happen on Tuesday.

Considering that we are within 10 weeks of a certain election, the budget really is not worth the paper its written on as it will likely change with an ‘election’ likely to be enacted straight after the new government is sworn in. That said, the budget is likely to show once again that Canberra is messing at the edges and not taking the steps needed to address structural issues. The AUD is likely to fluctuate on the release and then find a direction (more likely to the downside) over the week as the budget shows the soft set of numbers with little or no change in the interim.

Finally, the rally of the yen appears to be over as it continues to weaken. USD/JPY climbed from Y149.20 in early Tokyo trade to around Y149.90 as the London session got underway. With CFTC data showing significant long yen positioning, some traders likely unwound short USD/JPY bets ahead of the BoJ decision.

Other JPY pairs moved in tandem with USD/JPY. But whatever is at play out of Japan – the rally of the past 6-7 months looks to be ending and with USD/JPY facing the magic Y150 mark – will the BoJ step in like it did last year? Will the market look straight past it again?

Or will we see a completely different trend?

We're learning a lot about the Trump administration 2.0, it's going to be hard to bed down, it has a nationalistic principle like never before and unlike the first administration thought bubbles will turn into action rightly or wrongly as all checks and balances now don’t exist. What's also different between Trump 1.0 and Trump 2.0 is using The US equity markets as a benchmark for performance. It's been fascinating to see just how silent on the markets the president has become, for example in his first term it was his favourite thing to talk about on social media and there's good reason for that.

From November 6 2016 to the following February in 2017 the S&P 500 climbed 13 percent and closed out the full year with an impressive 20% gain. If we take the same dates this time around: November 5 2024 to this February 2025 it's a completely different story up the S&P 500 is up just on 2% (and has fallen into the red if we include March trading) and that's despite the fact that in the first several weeks after the November election markets were on tear. You also need to compare the S&P to difference peers across the world - look at Europe, where markets have surged, China markets have also bounced even the Australian market has made records.

There have been some interesting deep dives into this situation over the last few weeks, here are some stark stats that highlight that this time around Trump might not care about the markets as he once did. In his first term, Trump posted about the stock market 156 times. Since the start of 2024, he’s only mentioned it once.

The political messaging has also changed, in his first term he constantly used positive economic developments for example: lower unemployment (he used terms ‘lowest ever seen’ however this was not factually correct), a surging stock markets, infrastructure spending in key states, manufacturing booming on his watch – all where used constantly to reconfirm that he was the difference. In his second term this has evaporated – messaging is focused on the debt ceiling, government spending and the task of DOGE, tariffs and nationalising everything. Now that’s not to say that he won’t return to the good old days of market-led commentary that we traders had learned to love.

But it there is no denying that the difference striking It also reenforces that the Trump trades that have now fizzed out may have more to lose. Just look at the reactions to the Trump trade over the past 10 days - market sentiment has soured, the narrative around the U.S. economy has turned dark and there is limited bright news coming. Now market “vibes” shouldn’t matter, they undeniably do.

Again look at what was happening a mere 6 weeks ago just before Trump’s inauguration, The proposed tariffs were viewed as inflationary but potentially beneficial for domestic manufacturing. Well that narrative has now flipped - The prevailing thought is that they’re seen as harmful to growth, with early inflationary effects likely stemming from importers rushing orders to avoid price hikes. Similarly, efforts to rein in federal spending, once praised as fiscal discipline, are now seen as a potential drag on economic momentum.

Then we just have to look at recent data: Retail sales posted their steepest decline in nearly two years, consumer confidence saw its sharpest drop in four years, and optimism among small businesses appears to have peaked. Getting back to the statistics that matter have a look at Citi index’s surprise index – the U.S. data is now consistently missing Wall Street forecasts, while Europe’s economy continues to outperform. The initial post-election reaction where based on several pillars ‘America First’—higher growth, higher inflation, higher interest rates, digital and a stronger dollar.” One by one, those assumptions are crumbling.

Just look at Bitcoin down 26% from its January high. U.S. stocks have dropped 4.5% from their recent peak—not even a technical pull back, but a sharp contrast to the relative strength in European and some Asian market markets. Its not just the Trump trade that is feeling the difference have a look at the impact the new administration is having on Tesla.

Being the face of DOGE and the President’s closest alley has downsides. Telsa is currently facing declining sales, especially in Europe and other zones that see Musk as a root cause for current issues. Now increased competition is a factor (have a look as just how well BYD is doing), Musk’s aggressive cost-cutting and controversial political moves aren’t helping.

Tesla shares have plunged 40% since mid-December. A Trump trade that is thriving - the Russian Ruble, up nearly 30% against the dollar this year with no sign of slowing down. Take that as you will.

Ultimately sentiment is always in a state of flux as we all know, but there is a telling trend in the new administration that is clearly a drag for the Trump trades as we have known them over the past periods. The question will be - can the president revive them, or have they officially been killed off? The president’s approval rating might be the answer to that telling question.

So for the first time in over four years the Reserve Bank of Australia (RBA) has cut the official cash rate by 25 basis points to 4.1%. They fired the gun they've loaded it for the possibility of more but are they blanks? Let's drive into what was said in the statement, what outlook was given and what this means for the Australian dollar and your trading going forward.

First – the action. The RBA made its first move in over a year 15 months to be exact, cutting the cash rate by 25 basis points to 4.1% at its February meeting. This marks the first rate reduction since November 2020, and marks what looks to be the other side of the “Table Top” mountain effect for the cash rate as we had discussed when the hike cycle began.

While the cut itself was widely expected - the RBA went full hawk in explaining what the outlook and rate cutting cycle will look like particularly on expectations of an extended easing cycle. To really highlight this point, have a look at the AUD when RBA Chair Michele Bullock was speaking on this point during her press conference. The short reversal is telling.

The crux of the whole position is - the RBA acknowledges progress on inflation but remains cautious about declaring victory. And that is a fair position to hold, core inflation is running at 3.2% and headline at 2.4%. Yet the bank is forecasting headline inflation to flare to 3.7% come December with core (trimmed mean) at 2.7% unchanged for TWO AND A HALF YEARS!

It reflects a delicate balancing act—while inflation is tracking lower, the labour market remains unexpectedly tight. The central bank wants (needs) more evidence before committing to further cuts, making it clear that markets are getting ahead of themselves hence the moves in the AUD. It begs the question: Why Cut Rates Now?

The Inflation-Labor Market Trade-Off Clearly the RBA’s decision to ease policy was largely driven by better-than-expected inflation data in Q4 2024. Disinflation has been happening faster than anticipated, which gave the central bank confidence to remove some policy restrictiveness, which it has always said it would as soon as it thought it could. But inflation is only one side of the equation.

The flip side is the labour market – which is hot and running hotter than expected. Unemployment remains at 4.2%, below the RBA’s estimated full employment level of 4.5%. While job vacancies have eased slightly, demand for workers remains strong, which could keep wage pressures elevated.

Caveat – the wage price index the day after the RBA meeting came in at 3.2% meaning in real wages terms wages growth is 0. But – it still presents a risk: easing too much too soon could reignite inflation, particularly in wage-sensitive sectors like services. Hence the hawkish stance.

As mentioned inflation is projected to settle at 2.7%—still above the 2.5% midpoint of its target range—while unemployment is expected to remain relatively low. This suggests that the RBA is not entirely convinced that inflation will continue declining without further policy restraint. The central bank is effectively saying: "We’ll cut where possible as we don’t want to leave policy restrictive any longer than necessary, but we’re not ready to call this the start of a full easing cycle." Is this just new aged jawboning?

Moderating the Market We feel we are now entering a new phase – upside jawboning a deliberate ploy to temper market expectations and more importantly – the consumer. The concern is that easing policy could trigger a rebound in spending, asset prices, and broader economic activity—creating inflationary pressures that could undo recent progress. This is why Governor Michele Bullock took a firm stance in her press conference, directly challenging the market’s expectation of multiple rate cuts and described the market’s pricing—which holds three additional cuts in 2025—as " far too confident." In short the Board’s message is clear: February’s cut does not automatically signal a sustained easing cycle.

The Board remains data-dependent and will only consider further rate reductions if inflation risks subside and the labour market shows definitive signs of cooling. What’s the biggest threat to the RBA? The Federal Election and Fiscal Policy Never underestimate a government and spending money – which makes fiscal policy risk number 1.

With a federal election due by May 17, government spending could play a significant role in shaping the economic outlook. If fiscal stimulus is ramped up, through cost-of-living relief measures or infrastructure spending, it will add upward pressure to inflation, thus reducing the urgency for further rate cuts. The RBA has explicitly stated that its forecasts do not assume any additional election-driven spending, meaning any surprises on this front could alter the rate outlook and the 3.7% headline figure could be worse.

Consumer and Housing Market Reactions Another key factor is how households respond to this rate cut. If consumer confidence rebounds strongly and household spending picks up, this may also signal a reassessment. Housing both prices and construction activity will be other critical indicators.

A surge in property market activity, driven by lower borrowing costs, could create renewed inflationary pressures, forcing the RBA to hold back on further cuts. And let’s be honest this has happened every easy cycle. Global Economic, Geopolitics The broader global economic landscape also plays a role.

If central banks in major economies, such as the US Federal Reserve, move more aggressively on rate cuts, this could influence the RBA’s decision-making. A more dovish global monetary environment could ease financial conditions in Australia, allowing the RBA to be more patient in its approach. Counter this with trade tariffs, trade wars and tit-for-tact reactions that increase inflation may lead to not only a long pause but also the risk of hikes.

Crystal ball time For now, the market has a cut fully priced in by the July meeting but the risk of a delay is growing. The RBA’s cautious approach suggests it wants more time to assess how inflation, employment, and economic activity evolve before making another move, suggesting September is a more likely month for the next cut, all things being equal. Ultimately, the path forward remains highly uncertain.

This means the central bank is unlikely to move quickly, and expectations of a rapid series of rate cuts may need to be revised. Hence as traders the AUD weakness may now have found a floor as cuts are not going to be as forthcoming. In short: while this cut marks the beginning of policy easing, it’s far from a signal that the RBA is on an aggressive cutting path.

The data will dictate the next steps, and for now, the Board remains firmly in watch-and-wait mode.