CFO Pulse > August 2025

Trump Tariffs & Interest Rate Cuts Back on the Table

The long-awaited June quarter inflation data provided confirmation that inflation is well within the RBA target and as a result, a 25 basis point interest rate cut is fully expected for the next RBA meeting on 12 August. The markets are continuing to price in a cash rate around 3 per cent over the next 12 months, which is down from the current rate of 3.85 per cent.

In annual terms, inflation fell to 2.1 per cent in the June quarter, while the trimmed mean rate eased to a 4 year low of 2.7 per cent. Both measures are squarely in the RBA target band. The monthly inflation data showed an even sharper fall in annual inflation than the quarterly data.

International economic conditions remain fragile, and higher tariffs are emerging as a key source of uncertainty. The US has announced a 10 percent tariff on Australian goods, impacting exports such as beef and pharmaceuticals. While this is in line with the UK’s rate, other nations face steeper duties, with Brazil hit with a whopping 50 percent and India at 25 percent. The US accounts for around 6 percent of Australia’s export market, compared to China’s much larger share. That said, global growth is still pointing toward a soft landing, with only modest rises in unemployment expected. Most central banks, including the US Federal Reserve, are pausing their interest rate cutting cycles, and apart from Japan, there are few signs of a shift toward rate hikes.

Australia

In addition to the June quarter inflation data, the various indicators of economic growth were generally weak, highlighted by the unemployment rate rising to a three and a half year high of 4.3 per cent. The labour force data confirmed a stalling in job creation with near zero change in employment in the past two months. Future demand for labour remains problematic with the number of job vacancies 30 per cent lower than the 2023 peak. The RBA is forecasting the unemployment rate to peak at the current 4.3 per cent level.

Evidence of a sustained and decent economic recovery in Australia is scant. Household spending growth remains flat, the number of new building approvals remains well below the level needed to meet underlying demand, the value of export receipts continues to weaken while business investment is lower now than it was a year ago.

House prices continue to move higher, supported by still strong demand from buoyant immigration inflows and an on-going shortage of properties for sale or to rent.

The next critical economic information for Australia in the near term will be the RBA meeting on 12 August, the wage price index on 13 August and the labour force on 14 August.

New Zealand

The steady economic recovery in New Zealand continued with the impact of earlier interest rate cuts starting to support consumer spending and the economy more broadly. The better economic news was accompanied by on-going moderate inflation which is on track to meet the RBNZ’s target. Inflation rose 0.5 per cent in the June quarter for an annual rate of 2.7 per cent. Annual core inflation was broadly steady at 2.4 per cent.

The RBNZ continues to hold interest rates steady at 3.25 per cent, although it signalled the risk of marginally lower interest rates if the pick-up in economic growth falters. Markets are pricing in broadly steady interest rates over the course of the next 12 months. After a sharp fall between 2022 and 2023, house prices have stabilised in the last two years.

Currencies

There was another month of relatively stable currency markets, with the AUD and NZD only a little lower, with a step down after the US Fed’s ‘on hold’ interest rate decision on 30 July. After hitting a high of 66 US cents, the AUD has edged back to 64.50 US cents while the NZD has been marginally softer at around 59 US cents. The AUD/NZD cross has been remarkably steady for several years, and continues to trade between 1.06 to 1.10.