Australia’s Consumer Price Index (CPI) data for the second quarter will be released on Wednesday, July 30, at 11:30 AM Sydney time. The trimmed mean, an important measure of core inflation, is expected to remain steady from the previous quarter but may show a year-over-year decrease to 2.7%. If this decrease doesn’t happen, the Reserve Bank of Australia (RBA) might stick to its current policy during the August meeting. The RBA has set a target of approximately 2.6% year-over-year for the trimmed mean, which corresponds to about 0.55% quarter-over-quarter. According to the Commonwealth Bank of Australia, the headline CPI is projected to rise by 0.8% from the previous quarter in Q2 2025, leading to an annual rate drop to 2.2% year-over-year. The trimmed mean CPI is expected to increase by 0.7% quarter-over-quarter, resulting in a slight annual drop to 2.8%. Depending on how it’s rounded, this could show as 0.7% quarter-over-quarter and 2.7% year-over-year.

Expected Rate Cuts

Analysts believe the RBA might cut rates by 25 basis points in August as trimmed mean inflation continues to ease. Another cut is also anticipated in November, with a chance of an extra cut in early 2026. The upcoming Australian inflation data is crucial for the market this quarter. It will directly affect the RBA’s decision on August 6. The results will provide valuable insight into whether price pressures are genuinely declining towards the central bank’s target. Traders in derivatives should prepare for increased market volatility around this announcement. The key figure to watch is the trimmed mean inflation rate, which is expected to drop to about 2.7% year-over-year. This would represent a significant slowdown from the 4.0% annual rate recorded in the first quarter of 2024. If the number matches or falls below this prediction, it will indicate that the current restrictive policy is working.

Market Sentiment and Predictions

One major bank’s prediction of a rate cut in August contrasts sharply with general market views. According to the ASX RBA Rate Tracker, traders are currently pricing in less than a 15% chance of a rate cut, making this bank’s perspective quite unique. This difference in views means that any unexpectedly low inflation figure could lead to a quick and drastic change in interest rates. Considering this, we expect that implied volatility in Australian dollar options and interest rate futures will be high. Traders should be ready for sharp price movements in currency and bond markets right after the data release on Wednesday. It’s more important to prepare for various potential outcomes rather than to commit to a single direction beforehand. Historically, the central bank aims for an inflation range of 2-3%. With the cash rate currently at a high 4.35%, any indication that inflation is returning to this target would give policymakers a strong reason to consider easing. A lower-than-expected number would likely cause the Australian dollar to dip and bond prices to rise as the market rapidly adjusts to a higher chance of a near-term rate cut. Given this environment, preparing for a possible market surprise could be a wise approach. Options that benefit from major price movements rather than a specific direction may help traders navigate this event. If the trimmed mean figure comes in much higher than expected, the market would need to quickly retract the few existing rate cut bets and might even start to consider another rate hike. Create your live VT Markets account and start trading now.

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