01:04 PM EDT, 07/07/2025 (MT Newswires) -- UBS said it now believes the Reserve Bank of Australia (RBA) will cut rates this week, with weaker-than-expected retail sales data last week shifting its view.

The RBA is slated to release its policy statement at 12:30 a.m. ET on Tuesday.

Besides disappointing Q1 gross domestic product, May retail sales rising 0.2% month over month have come in below

market expectations of 0.5%, noted the bank. This soft patch in activity alongside the moderation in inflation allows the RBA to defend growth by bringing forward rate cuts to July and August -- previously August and November.

After that, UBS expects the RBA to pause and wait for more data on household consumption and greater visibility on the outlook for the global economy. In addition, despite this change, the bank keeps its terminal rate expectation at 3.1% and sees a final 25bps cut in February.

With money markets already mostly priced for cuts in July and August alongside a lower terminal rate of 2.85%, the UBS expectations for the Australian dollar (AUD) remain unchanged despite the adjustment.

The bank maintains its view of a tightening of the Australia-U.S. short-term bond spread, ongoing tightness in the labor market, and a stabilization of commodity prices around current levels or higher. As such, UBS still likes to sell the

downside in the AUDUSD at or below 0.64.

UBS estimates the Reserve Bank of New Zealand (RBZN) to

hold interest rates at 3.25% this week, which aligns with

market pricing.

RBNZ is scheduled to publish its policy statement at 10 p.m. ET on Tuesday.

The risk is for another 25bps cut, but with a surprise rise in inflation, the bank thinks the RBNZ will signal its data-dependent stance. UBS also PREDICTS minimal guidance

on further moves, while retaining its general easing bias.

That said, the bank has seen mixed high-frequency data recently, which makes an additional 25bps reduction to a 3% terminal rate likely. Already, the cash rate is in the neutral "zone" at this level, according to Acting Governor Christian Hawkesby.

So, UBS likes to sell the downside in the NZDUSD at 0.60 or below.

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