The Reserve Bank of Australia is likely to cut its cash rate by 25 basis points this week after pausing in July. The announcement is expected tomorrow. On Tuesday, August 12, 2025, several economic data releases are scheduled for Asia. All times are in GMT, along with prior and consensus figures for various economic indicators.

Hawkish Rate Cut

Tomorrow, August 12th, the Reserve Bank of Australia is expected to lower its cash rate by 25 basis points. This is described as a ‘hawkish cut,’ meaning the bank is hesitant and this isn’t the start of a major easing trend. This situation is creating a challenging trading environment. The mixed signals come from recent economic data. GDP growth has slowed to just 0.2% last quarter, indicating a need for a rate cut to help the economy. However, with the last quarterly CPI inflation rate still high at 3.8% and unemployment low at 3.9%, the RBA cannot signal that it’s finished fighting inflation. For traders dealing with derivatives, this scenario suggests increased volatility for the Australian dollar. A prudent strategy for the upcoming event is to use options to buy volatility, such as a straddle on the AUD/USD pair. This strategy will profit from significant price moves in either direction, which are likely as the market processes the conflicting messages of a rate cut paired with cautious language. In the coming weeks, we believe this policy will stabilize short-term bond yields, as markets adjust their expectations for further immediate cuts. Traders should keep an eye on interest rate futures to see how the predictions for the year-end cash rate change. The RBA’s statement will be crucial in shaping the market outlook for the rest of the quarter.

Policy Fine-Tuning

Looking back, the current situation is much more complex than the clear hiking cycles we saw globally in 2023 and 2024. During that time, the direction of policy was straightforward, leading to simpler trades. Now, we are in a phase of policy fine-tuning, which requires more advanced strategies that consider risks in both directions. Create your live VT Markets account and start trading now.

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