There are still three weeks to go until the next central bank meeting in Australia, but the market is already relatively certain. A 25 basis point cut in the key interest rate has been fully priced in by the market, and since the last meeting, at which the RBA surprisingly left the key interest rate unchanged, most analysts (including myself) have also been expecting a move in August, Commerzbank's FX analyst Volkmar Baur notes.

Labour market remains tight

"However, one should not be too certain. At least, that was the message from RBA Governor Bullock on Thursday. She reiterated what the RBA had clearly stated in the minutes of its last meeting: that the RBA will proceed very cautiously in this cycle of rate cuts. A cut in August is therefore not a foregone conclusion. In addition to the statement that the RBA intends to proceed cautiously in this cycle, there were also three things that it said it would pay particular attention to before the next meeting in order to make a decision on a further cut. In addition to the international environment, inflation and the labour market were explicitly mentioned."

"Looking at the international environment, it seems fair to say that uncertainties are declining. It appears that the 1 August deadline for the new tariffs will not be postponed again. Australia has not yet received a letter, but the tariff rate for Australian exports to the US should be clear next week. And the market seems to be taking all this in its stride so far. This would therefore make a cut less likely. The labour market report for June, which was published around a week after the last RBA meeting, was rather weak. All in all, the labour market remains tight."

"Inflation remains. Here, the focus is particularly on the quarterly figures, as these will show the full picture of inflation from April to June. Monthly indications for April and May are already available and point to a continued decline. However, the full picture is only published every three months. This time, there are speculations that the housing component in the monthly figures may have recently dampened the inflation picture, meaning that inflation for the second quarter could be higher than the monthly figures suggest. If this is indeed the case, the market would have to reconsider its assumption behind the key interest rate cut in three weeks. This would support the AUD again in the short term."