The RBA had a trick up its sleeve in July, when it opted to hold rates. The markets had widely expected a rate cut but the RBA said that it wanted to see additional inflation data before delivering a rate cut.
Inflation has been cooling, as CPI for the second quarter nudged down to 2.1% y/y, down from 2.4% in Q1. This strongly supports the case for a rate cut as CPI has fallen close to the lower band of the RBA’s 2%-3% target. Core inflation has also been easing lower. As well, the labor market is showing signs of cooling and the central bank wants to avoid a sharp deterioration in employment data.
With today’s move practically a given, investors will be looking for hints about further cuts. Governor Bullock has sounded cautious, noting that inflation remains sticky and there is continuing uncertainty over US tariffs.
Australian goods face a low 10% US tariff, which is not expected to have a significant impact on the economy. However, US tariffs on China, which is Australia’s largest trading partner, could weigh on economic growth.
In the US, it’s a very light calendar with no tier-1 events. On Tuesday, the US releases CPI for July, which is expected to tick up to 2.8% from 2.7% in June.
