The Aussie ended the week modestly higher this week, though not without volatility along the way. AUD sold off post the RBA decision but found support after Governor Bullock's press conference, where she said the Board would not rule out further rate rises later this year. The currency then drew additional support from US inflation data, which came in line with expectations and saw markets pare back Fed rate cut bets.Locally, the RBA kept rates on hold at 4.35% as widely expected, in a unanimous decision, but stopped short of closing the door on further hikes, explicitly flagging it would raise the cash rate again if upside risks to inflation materialise. The updated SMP forecasts also caught some attention. As we had flagged in our RBA preview, near-term inflation forecasts were revised down, though the June quarter 2027 figure for headline inflation was revised up, likely a base effect from this year's fuel excise cycling. Growth forecasts were nudged higher but remain subdued, with the unemployment was revised up slightly on a higher starting point. Nevertheless, the meeting itself did little to change our rates view. We continue to expect the RBA to keep rates on hold until mid next year, with a rate cut in the second half of the year (pencilled in August). Markets are currently pricing in around a 68% chance that rates get raised one more time by early next year (Feb-2027).The NAB Business Survey for July also showed little change in confidence or conditions. Business confidence remained weak at -6, with conditions ticking up modestly to 4 (from 3). There was some concern on the inflation front, with labour costs rising sharply, likely as the FWC wage decision hit businesses, while both input and final product price measures remained elevated. Demand measures, however, stayed weak, with forward orders remaining in negative territory.Looking ahead, Q2 WPI and July labour force data are due this week. We expect wages to rise around 0.8% QoQ, which would see the annual rate ease to 3.2% from 3.3%. That said, we see some upside risk for the September quarter given both inflation risks and the FWC decision, which delivered a 4.75% increase to national minimum wages and modern award minimums. Emerging slack in the labour market should nonetheless keep wage pressures broadly contained. On the labour force, we expect a modest employment gain of 14.7k MoM, with unemployment holding at 4.4%. We continue to expect further cooling in the labour market ahead, as labour supply outpaces demand, and forecast the unemployment rate to peak at 4.6% in late 2026.
Globally, the focus was on US inflation data for July. US headline CPI rose 0.1% MoM, with core inflation rising 0.2% MoM, in line with expectations. More importantly for the Fed, the annual core rate eased to 2.5% y/y from 2.6%, while on a three-month annualised basis core inflation fell to just 1.6%. Core goods prices rose 0.2% MoM, with tariffs and elevated chip costs pushing nominal prices higher in technology goods, though adjustments continue to mask much of this in the official data, as seen in falling smartphone prices. Additionally, shelter, the largest weighted component in the basket (~35% weight), rose just 0.1% MoM. Indeed, with asking rents showing signs of easing across a growing number of US states, this softness will likely feed into CPI rents over coming months. This will likely add further downward pressure on headline inflation given its large weighting in the basket. Adding to this, US PPI data was also released and pointed to contained pipeline pressures, with the headline measure flat in July and the core reading rising just 0.2% MoM, both below consensus. Core goods PPI rose only 0.1% MoM, the smallest increase since December 2024, while services PPI rose 0.2% MoM. The report saw markets pare expectations for a near-term Fed hike, with pricing now around a 40% chance of a September move. This reinforces our view that underlying inflation is moderating and that relative price shocks from tariffs and energy have not broadened into more persistent pressures. Alongside renewed signs of labour market weakness, the data support our view that the Fed will remain on hold for the remainder of the year. Indeed, the bar for a September hike from the Fed has risen, though the risk is not eliminated. Before they meet in September, July's PCE data and the August CPI and labour reports are all due.The Middle East also remained in focus this week. Brent crude climbed as high as $90/bbl as prospects of reopening the Strait of Hormuz continued to dim, before easing back to close the week near $88/bbl. The late week retreat in prices came as evidence mounted that flows of oil were holding up better than expected, with Gulf producers said to be disguising cargo movements through the strait. Adding to this, US Energy Secretary, Chris Wright, claimed that flows have averaged 9mb/d over the past week. However, the easing in oil prices did stall as there were reports that Iranian backed Houthi militants targeted Saudi Aramco's Jazan refinery for the second time in a week. Talks to reopen Hormuz have also seemed to have stalled, with both sides demanding concessions the other is unlikely to meet. Indeed, given the recent supply constraints, the IEA now projects a global shortfall of 1.8mb/d this quarter, more than double its earlier estimate
