We expect the RBA to cut rates by 25bps to 3.6% at its meeting on Tuesday 12 August, with data-dependent forward guidance that may seek to keep September live for a follow-up cut, only modest changes to inflation and labour market forecasts in the accompanying Statement on Monetary Policy. We believe forecast revisions—slightly higher unemployment and lower inflation in 2026—will point to a slightly more dovish lean compared to the July Statement. We think a 25bp cut will primarily reflect a recognition that its inflation concerns – expressed in its surprising decision to not cut the cash rate in July – were somewhat overdone. We see the softer June labour force report as also supporting a decision to cut. We think it would be quite sensitive to any further rise in unemployment from here, so a rate cut appears sensible from a risk management point of view. After a 6-3 vote in July in favour to keep rates unchanged, we see the August decision as unanimously favouring a rate cut. The most interesting aspect of the meeting will be the forward guidance in the post-meeting statement, and more importantly, in the Governor’s post-meeting press conference. Our read of the economy is that a follow-up cut in 25bp at the September meeting would be appropriate. But market pricing assigns a much higher probability to the ‘next’ cut not coming until November (~10bps are priced in for September, ~30bps are priced in by November). we would not be surprised if the Governor uses the press conference to explicitly make September ‘live’. If that does not happen, and instead the Governor reiterates a slow and steady approach to policy easing going forward, then Sep cut pricing can further reduce. AUD we remain mildly bullish considering recent healthy growth data locally. We also expect the rate differentials between USTs & Australian rates in the front end up to 2-year segment can further widen from here. This is based on our view that US might see front ended rate cuts by March’26 to the tune of 100-125 bps where as the market is pricing in only 80 bps of cut till Mar’26 in US. Even if RBA remains neutral and does not signal a Sep cut, this trade of widening differentials should work.
