RBA holds rates amid inflation surprise – Oil surges on geopolitical tensions

Markets

Yesterday’s first batch of US economic data wasn’t exactly groundbreaking. JOLTS job openings in June came in close to expectations with 7.43mln, easing from the 7.71mln in May while the July Conference Board’s consumer confidence indicator improved a bit more than expected from 95.2 to 97.2. The present situation was seen slightly less favourable than in June but only because of an upward revision to that month’s reading. The expectations component edged higher to 74.4 to nevertheless remain below both the pre‐ and post‐pandemic levels. In any case it didn’t suffice for US yields to stop a decline that was already ongoing earlier in the day. A strong $44bn 7‐year auction later only added to the drop. Net daily changes varied between ‐5.8 (2‐yr)  to ‐10.2 bps (30‐yr). Such large moves also suggest some Treasury short covering ahead of tonight’s FOMC meeting. Bunds underperformed with yields adding up to 2.6 bps at the front. The sharp narrowing of interest rate differentials helped EUR/USD off the intraday lows but nothing more than that. The couple still lost the 1.1578 neckline to end the day at 1.1547. DXY tested the previous mid‐July high at 98.95 but eventually closed below that intermediate resistance. USD/JPY snapped a three‐day rise at 148.46. EUR/GBP (0.8648) followed through on technical return action lower after Monday’s failed test of the November 2023 high.  

Some trade headlines have been hitting the wires over the last couple of hours again. China’s negotiator told reporters in the wake of a two‐day meeting with US counterparts in Stockholm that they agreed on extending the current August 12 tariff deadline. UST Bessent was more cautious and said Trump will make the final call. In the talks with India, the US president said he thinks the country may end up with a 20‐25% levy. Moving on to the busy economic calendar today we spot a French Q2 GDP beat this morning. Growing by 0.3% q/q was well above the 0.1% expected and follows a beat in Spain yesterday as well (0.7% q/q). Details were not as bright as the headline figure suggests though. Inventory building offset weak domestic demand and declining capital investments. Germany, Italy and the Euro area publish GDP numbers later today. The same goes for the US, where Q2 growth should have rebounded from an import‐lead drag in Q1. The Fed policy meeting takes center stage though. While Powell is bound to leave rates unchanged at 4.25‐4.5%, markets are particularly on the lookout for any hint regarding future easing now some (though definitely not all) of the tariff fog is ebbing away. While we don’t expect that to happen given talks with another major trading partner China are still ongoing and the relative resilience of the labour market, such a scenario would pressure the US dollar and rates. Money markets price in a 65% chance for a cut in September.

News and views

Australian inflation eased to 0.7% q/q from 0.9% in 2025Q2, falling just shy of the 0.8% expected. The yearly print retreated to 2.1% from 2.4%, the lowest annual inflation rate since 2021Q1. Core gauges such as the trimmed mean and weighted median rose by 0.6% to be up 2.7% y/y. Per sector, annual goods inflation was down to 1.1% from 1.3% while services eased from 3.7% to 3.3%. The main contributors to the quarterly rise were housing (+1.2%), food and non‐alcoholic beverages (+1%), and health (+1.5%) with transport (‐0.7%) partially offsetting the rise due to automotive fuel (‐3.4%). The numbers further solidify market expectations for an August rate cut by the Australian central bank (RBA). The RBA unexpectedly kept the policy rate unchanged at 3.85% earlier this month amid risks for a higher‐than‐expected Q2 CPI outcome. While technically having materialized (for the core gauge, at least), it was only marginal (2.7% vs the 2.6% the RBA expected). Front end Australian swap yields decline up to 4.5 bps. The Aussie dollar holds steady near the lower bound of an upward sloping channel around AUD/USD 0.6514.

Oil prices rebounded over the last days with yesterday’s 3.5% spike particularly catching the eye. Brent crude trades well north of $72/b, the highest since tensions in the Middle East hit a high after Israeli strikes on Iran. The latest uptick followed US president Trump drastically cutting the timeline for Russia to seek a ceasefire with Ukraine from 50 to 10 days. Failing to do so would prompt US sanctions on buyers of Russian oil, mainly China and India. This risks eventually ending up in millions of barrels of reduced Russian oil exports.

Download The Full Sunrise Market Commentary