Australian Bond Exchange Weekly Update
25th July 2025
Key Points
- Australia: The Reserve Bank of Australia (RBA) kept the cash rate steady at 3.85% p.a. Minutes released this week noted that a 25bp rate cut is under consideration for August, subject to the outcome of the upcoming CPI release.
- United States: The Federal Reserve maintained its target cash rate at 4.25% to 4.50% p.a. Fed Governor Waller reiterated support for rate cuts, though the Fed is widely expected to remain on hold at its next meeting.
- United Kingdom: The Bank of England (BoE) left its Bank Rate unchanged at 4.25% p.a. There were no new data or policy changes this week.
- Eurozone: The European Central Bank (ECB) held its deposit rate at 2.0% p.a., with June inflation confirmed at 2.0%, consistent with the Bank’s target.
- New Zealand: The Reserve Bank of New Zealand (RBNZ) saw a lower-than-expected Q2 CPI print this week, reinforcing market expectations of a potential rate cut in August.
Market Insights
- The RBA minutes flagged a potential 25bp rate cut in August, with markets fully pricing in easing ahead of the Q2 CPI release on 30 July.
- Fed Governor Waller reiterated support for cuts, but markets expect no change next week as inflation remains above target.
- The ECB held rates steady at 2.0% p.a. and maintained a cautious tone as June inflation met its 2% target.
- The US-Japan tariff deal boosted sentiment, with hopes it may serve as a template for ongoing EU and China trade negotiations.
RBA: August Cut Under Consideration
The minutes from the RBA’s July meeting, released this week, showed a notable shift in tone. While the Board ultimately kept the cash rate at 3.85% p.a., it acknowledged that a case for easing could be made if upcoming data confirmed continued disinflation. The RBA flagged that a 25bp rate cut is “a live option” for the August meeting, particularly if the Q2 CPI (due 30 July) prints in line with or below market expectations.
The domestic labour market is already showing signs of softening, with the unemployment rate edging up to 4.3% in June from 4.1% previously. Combined with subdued consumer sentiment and slowing household spending, these indicators are fuelling expectations of a shift to a more accommodative policy stance. As of this week, interest rate futures are fully pricing in a 25bp cut at the 12 August meeting.
Fed Commentary Remains Mixed
In the US, inflation remains above the Federal Reserve’s 2% target, with June CPI rising 2.7% year-on-year and core inflation holding at 2.9%. Despite this, several Fed officials have turned more dovish in tone. Governor Waller, in remarks this week, reiterated that rate cuts should be on the table in the near term if inflation continues to ease.
However, the Federal Open Market Committee (FOMC) has not formally shifted its stance, and most analysts expect the Fed to keep its policy rate unchanged at next week’s meeting. Markets are now focused on any revisions to the Fed’s forward guidance or dot plot as potential clues to the path ahead.
Global Policy: Easing Tone Builds
Globally, monetary policy sentiment appears to be turning a corner. The European Central Bank (ECB) held its deposit rate at 2.0% p.a. in its latest decision, with June inflation confirmed at 2.0%. While the ECB is not expected to ease imminently, it continues to strike a balanced tone—acknowledging weaker growth momentum while signalling vigilance on inflation.
Meanwhile, in New Zealand, the latest CPI data surprised to the downside, showing weaker-than-expected inflation in the June quarter. This has sharply increased market expectations for a rate cut from the Reserve Bank of New Zealand (RBNZ) in August. The RBNZ may now lead the region into the next easing cycle, particularly if disinflation trends persist.
These developments, taken together, point to a broader shift among developed market central banks toward policy loosening—or at the very least, a more data-dependent and flexible posture.
Tariffs & Trade
Trade policy briefly returned to the spotlight this week as the US finalised a 15% tariff deal with Japan. The agreement, which boosted Japanese equities and lifted the Nikkei by over 3.5%, was welcomed by markets as a potential model for future trade negotiations.
There is renewed speculation that this bilateral deal could serve as a framework for discussions with the EU, where talks have recently stalled. Meanwhile, ongoing tariff negotiations between the US and China are expected to extend beyond the informal 12 August deadline. While not a major immediate risk driver, these developments may contribute to improved sentiment and reduce some geopolitical uncertainty in the months ahead.
*Data accurate as at 25.07.2025
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