Business confidence in Australia hit a three-year high in July 2025, rising to 7 from 5. This jump shows growth in the services and construction sectors. However, business conditions dropped from 9 to 7. The survey found that business sales increased from 8 to 11, while profitability fell from 4 to 2. Employment also decreased from 4 to 1.

Price Indicators Show Inflationary Pressures

The survey’s price indicators show that inflation remains an issue. Retail prices rose by 1.1% in July, up from 0.5% in June, while producer prices grew by 0.9%. The Reserve Bank of Australia plans to cut its cash rate by 25 basis points after pausing in July. This decision fits the bank’s approach to current economic conditions. The latest business survey presents mixed signals. Confidence is at a three-year high, which is great for the economy. Yet, business conditions, profitability, and employment have all weakened, making it harder for traders to find their footing. Inflation is the main red flag. Retail price growth in the survey more than doubled from the previous month. This finding aligns with recent data from the Australian Bureau of Statistics, which reported annual inflation at 6.3%, surprising many who anticipated a quicker drop.

Reserve Bank’s Uncommon Rate Cut

This inflationary trend makes the Reserve Bank of Australia’s recent rate cut feel surprising. On August 5th, they lowered the cash rate by 25 basis points to 4.10%, but their statement emphasized the need to combat inflation. This “hawkish cut” indicates that they want to encourage growth but are concerned about rising prices, making another cut soon unlikely. For derivative traders, this uncertainty may lead to increased implied volatility in the coming weeks. With the central bank and inflation pulling in different directions, it makes sense to prepare for larger-than-expected movements using options on the ASX 200 or the Australian dollar. The market is tense, and such tension usually results in sharp movements in either direction. For the AUD/USD currency pair, this situation suggests range-bound trading with the possibility of quick, sudden shifts. The rate cut limits the Aussie dollar’s strength, but ongoing inflation and the RBA’s firm stance should offer support. Traders might think about selling volatility via iron condors unless they have a strong directional bias. We experienced a similar scenario in 2023 when global central banks were still raising rates despite fears of an economic slowdown. That time was marked by sharp reversals as markets reacted to new inflation and growth data. We should expect similar volatility now as traders balance the RBA’s actions with the economic indicators. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now