Insights 
VT 
The Reserve Bank of Australia is in session on Monday, August 11, 2025, and Tuesday, August 12, 2025, with a decision on the cash rate expected at 2.30pm local time on Tuesday. Following last month’s unexpected decision to maintain the cash rate, there is a consensus for a rate cut this time.
Expected Rate Cuts
Westpac anticipates multiple rate cuts, predicting a terminal rate of 2.85% by June 2026. They argue that if inflation targets and employment levels are achieved, restrictive monetary policies are unnecessary. The Commonwealth Bank of Australia foresees a straightforward 25 basis point reduction to 3.60%, seeing current data and labour reports aligning with RBA’s expectations.
Despite the expectation of a rate cut, Governor Bullock’s remarks in her follow-up press conference are expected to be hawkish. This approach aims to curtail any further anticipations of rate reductions.
With a 25 basis point cut almost certain tomorrow, the move is likely fully priced into markets. This means the initial announcement itself may not cause a significant move in the Australian dollar or short-term bond yields. The real focus for traders will be on the signals for what comes next.
We have seen the economic data support this move, which is why the market is so confident. The most recent quarterly CPI data released in late July 2025 showed headline inflation falling to 2.9%, finally entering the RBA’s target band. This, combined with an unemployment rate that has ticked up to 4.3%, gives the bank clear justification to begin easing policy.
Governor Bullock’s Press Conference
Given the shock hold decision at the July 2025 meeting, a small position using out-of-the-money options could be a smart hedge. A surprise decision to hold the rate steady again would cause a sharp spike in the Australian dollar. These cheap options would offer significant upside if the unanimous consensus proves wrong for a second consecutive month.
The main event will be Governor Bullock’s press conference following the rate decision. We anticipate a “hawkish cut,” where she delivers the expected easing but uses firm language to push back against markets pricing in a rapid series of cuts. Any language softer than expected would be a strong signal to sell the Australian dollar and buy bond futures.
Looking at the weeks ahead, the strategy is to trade the forward path of interest rates. With Westpac forecasting a terminal rate of 2.85% by mid-2026, there is a long easing cycle ahead. We can use interest rate swaps and futures contracts for late 2025 and 2026 to position for a cutting cycle that may be faster or slower than the market currently predicts.
When we look back at the start of the 2019 easing cycle, the first cut was followed by a period of sustained currency weakness as the bank continued to ease. However, the initial reaction can be volatile if the forward guidance is not decisively dovish. We must be positioned for this possibility, anticipating that the RBA will try to manage expectations carefully.
