Scene-setter—futures screaming “cut”
Traders are treating next Monday’s Reserve Bank of Australia (RBA) board meeting as little more than a formality. 30-Day Interbank Cash-Rate Futures for the July contract were quoted at 96.34 on 30 June, implying a 97 % probability the cash-rate target will be trimmed 25 bp to 3.60 %.(asx.com.au) That would be the RBA’s third easing move since February and would return the policy rate to a level last seen in April 2023.
Why markets are so confident
| Cooling inputs | Latest reading | Why it matters |
|---|---|---|
| Core CPI (y/y) | 2.4 % in Q1 ’25 (abs.gov.au) | Inside the 2–3 % target band for the first time in three years, giving the Bank “air-cover” to ease. |
| Monthly CPI indicator | 2.1 % y/y in May (abs.gov.au) | Inflation momentum still decelerating. |
| Retail sales | +0.2 % m/m in May after flat April (reuters.com) | Fourth straight month of anaemic spending underscores fragile demand. |
| Consumer sentiment | Deep-in-pessimist territory | Indicates households will bank, not spend, any windfall from lower rates. |
| Wage Price Index | 3.4 % y/y in Q1 ’25 (abs.gov.au) | Solid but no wage-price spiral; real wages are finally rising. |
The combination of sub-trend growth, ebbing inflation and only moderate wage pressure leaves the RBA with a “window” to insure against external shocks—including trade-war fallout and volatile commodity prices—before the global easing cycle fully takes hold.
Housing lens—what a 25 bp cut means for mortgages
Variable-rate owner-occupier loans are currently priced around 6.30 %. A quarter-point reduction would shave roughly A$60–A$150 per month off repayments for typical borrowers:
| Loan size | Before (6.30 %) | After (6.05 %) | Monthly saving |
|---|---|---|---|
| A$400 k | A$2,651 | A$2,589 | A$62 |
| A$600 k | 3,977 | 3,884 | 92 |
| A$800 k | 5,302 | 5,179 | 123 |
| A$1 m | 6,628 | 6,474 | 154 |
25-year term, interest-only for illustration; author calculations.
While welcome, those savings merely chip away at the A$16 bn in excess interest households have absorbed since the hiking cycle began. Property brokers nevertheless expect a flurry of refinancing enquiries and a modest pickup in new-home lending if the RBA signals more easing ahead.
FX watch—Aussie dollar and vol curve
- Spot: AUD/USD is orbiting the 0.66 handle after carving out a 0.6550–0.6650 range this week.(reuters.com)
- Yield-spread driver: The 2-year AU-US yield gap has narrowed to -82 bp, its tightest since November, removing a key pillar of support for the currency.
- Option term-structure: One-week at-the-money implied volatility has ticked up to 9.8 %, versus 8.4 % for the one-month tenor, reflecting demand for short-dated protection over the meeting date. Traders are leaning toward AUD puts/US$ calls, betting any surprise hold would jolt the Aussie lower before longer-dated vols “sink” back into the 8–8.5 % zone.
Equities—winners, laggards and the bank play
| Sub-sector | Rate-cut beta | First-order impact |
|---|---|---|
| Big-4 banks (CBA, NAB, ANZ, WBC) | ▲▲ | Margin squeeze (~4 bp per cut) offset by lower bad-debt charges and stronger mortgage volumes. |
| A-REITs | ▲▲▲ | Higher sensitivity to discount-rate moves; dividend yields already 280 bp above 10-yr ACGBs—scope to outperform if yields compress. |
| Discretionary retail | ▲ | Relief on financing costs but still hostage to weak wage growth. |
| Resource exporters | ▼ | Softer AUD cushions earnings; but China-linked demand risk looms larger. |
Australian banks historically underperform the ASX 200 by ~50 bp in the week after a cut as net-interest-margin maths dominates headlines. Yet the sector tends to recoup those losses within a month as volume growth and lower provisioning filter through. Income-hungry investors may pivot to AREITs for a cleaner duration play should the five-year swap rate break below 3 %.
Known unknowns—what could derail the cut?
- Oil shock: A sudden spike in Brent above US$90 on Middle-East risk could re-ignite domestic fuel inflation, forcing the RBA to stay patient.(reuters.com)
- Wage surprise: A Q2 Wage Price Index print north of 3.8 % y/y would rekindle fears of a wage-price spiral.
- Fiscal stimulus: Any pre-election cash handouts in the August mini-budget could blunt the case for aggressive monetary easing.
- Global spill-overs: If the Fed abstains from cutting in September on renewed U.S. tariff-driven inflation, the RBA may fear a sharp AUD depreciation that imports inflation back in.
Action checklist—before 1:30 p.m. AEST, 8 July
| Audience | To-do items |
|---|---|
| Home-owners | • Get pre-approval quotes now—lenders adjust advertised rates within hours of an RBA move.• Ask your bank for a rate-match; competition is fiercest in the fortnight after a cut. |
| Property investors | • Re-run cash-flow models at 3.35 % and 3.10 % RBA rates (market terminal)…• Check fixed-to-variable break costs—some lenders waive fees in a falling-rate cycle. |
| SMEs | • Lock in working-capital lines before guidance tightens.• Review equipment-finance offers; asset-backed spreads compress fastest after policy moves. |
| FX-hedgers | • Price 3-month collars while skew is still cheap.• Consider short-dated AUD put spreads to ride any “sell-the-fact” dip to 0.6450. |
| Equity traders | • Screen for AREITs with >4 % free-cash-flow yields.• Monitor CBA’s NIM guidance lines during earnings calls—every 5 bp NIM shift ≈ A$350 m profit. |
Next data checkpoints
| Date | Release | Market bias if soft |
|---|---|---|
| 3 Jul | Monthly CPI indicator (Jun) | Confirms disinflation → locks in cut, raises odds of another 25 bp in August. |
| 8 Jul, 4 p.m. | Statement on Monetary Policy (SoMP) | Watch the 2026 core CPI track; sub-2.5 % would validate futures pricing of a 2.85 % trough. |
| 22 Jul | Q2 NAB Business Survey | Guides loan-demand outlook; a weak capex intent index tips bigger bank provisioning relief. |
Bottom line
With inflation back inside target, retail spending flat-lining and wage growth merely middling, the RBA looks set to deliver a “no-drama” 25 bp rate cut to 3.60 % on 8 July. The near-certainty already baked into futures means the bigger market swing will hinge on Governor Bullock’s forward guidance. Should the SoMP project core CPI below 2.5 % for 2026, traders will quickly rotate from “one-and-done” to “a glide-path toward 3 % by mid-2026”, setting the stage for:
- AUD drift toward the 0.64–0.65 support zone,
- A rotation into duration-sensitive AREITs and infrastructure stocks, and
- A brisk refinancing wave that loosens the vise on household cash-flows ahead of the peak spring auction season.
For homeowners, SMEs and portfolio managers alike, Monday’s decision is less an end-point than the opening bell on the next phase of the cycle—one where the RBA’s challenge shifts from slamming on the brakes to easing off just enough without re-stoking inflation.