CPI data impacts the decline of the Australian dollar, confirming expectations for an RBA rate cut.
by VT Markets
/
Jul 30, 2025
Australia’s inflation data for Q2 2025 shows the headline Consumer Price Index (CPI) at 2.1% year-on-year, slightly below the expected 2.2%. The trimmed mean CPI is on target at 2.7% year-on-year.
These figures indicate a possible 25 basis point interest rate cut by the Reserve Bank of Australia (RBA) at its meeting on August 11 and 12. Previously, there were expectations for a cut, but the RBA held the cash rate steady, leaving uncertainty in the air.
Inflation Numbers and Implications
The new inflation data for the second quarter was softer than expected. This increases the chances of the RBA cutting its cash rate in August, which is putting downward pressure on the Australian dollar.
Interest rate futures show the likelihood of a 25 basis point cut has jumped to over 90%, up from around 75% before today’s data. The market is clearly expecting lower rates in the near future, which is influencing current trading activity.
For traders, buying put options on the AUD/USD could be a strategic move. This would benefit from a decline in the Australian dollar if the RBA decides to cut rates. Implied volatility is also lower, making these options a potentially cheaper way to express a bearish outlook.
Past Decisions and Future Expectations
It’s important to remember the RBA’s choice to keep rates unchanged during their last meeting in July 2025, even when a cut was widely anticipated. The RBA cited persistent services inflation as a reason for their decision, which could influence future choices. This recent surprise shows that nothing is certain.
Australian 2-year government bond yields have already dropped following the inflation data, falling below the current RBA cash rate. This suggests that the bond market is expecting at least one rate cut soon. Traders may also consider positions in short-term interest rate swaps to take advantage of this trend.
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by VT Markets
Jul 30, 2025
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