Summary:
Australia’s latest data signals a cooling economy, prompting expectations of a 25-basis-point interest rate cut by the Reserve Bank of Australia at its August 12, 2025, meeting. Unemployment rose to 4.3% in June, the highest since mid-2023, with youth unemployment at 10.2% and underemployment at 6.8%, showing labour market softness. Inflation is moderating, with headline CPI at 3.6% and trimmed mean inflation at 2.7%, within the RBA’s 2–3% target range.
Retail sales growth slowed to 0.3% month-over-month, housing loan approvals have fallen for three quarters, and building approvals declined 5.2% year-over-year amid weakening business confidence and investment. This would be the third rate cut this year, as the RBA cautiously balances inflation control and employment concerns. Further easing may follow if growth remains subdued. Rate-sensitive sectors like REITs, utilities, and consumer discretionary stand to benefit, while resource companies face mixed impacts due to commodity volatility and trade tensions.
The Australian 3- and 10-year bond spreads moved slightly higher as market participants adjusted their short-end rate expectations. In the US, the spread between 2- and 10-year bonds were stable over the week.
Figure 1: Aust. 3 yr minus 10 yr Bond Spread
Figure 2: Australian & US Bond Yields
Figure 3: US 10 yr minus 2 yr Bond Spread
