RBA rate meet on Tue as Trump tariff talks continue

The money market has priced in almost a 100 per cent probability the RBA will cut rates on Tuesday and that there will be four on the way, but tariffs still hang over global markets.

RBA governor Michele Bullock could unveil an interest-rate cut on Tuesday. Picture: Nikki Short

Investors and mortgage holders have all but locked in a 25 basis points cut in the official interest rate from the Reserve Bank on Tuesday, pumping confidence into the market at a time when political uncertainty and US tariff threats is fuelling volatility.

Most economists believe the RBA board on Tuesday will cut the cash rate by another 0.25 percentage points to 3.6 per cent, and that commentary from governor Michele Bullock is likely to be dovish.

“This will be the third cut since the RBA started to ease in February. At its May meeting the RBA signalled less concern about inflation which it saw as being at target and more concern about the growth outlook,” AMP chief economist Shane Oliver.

AMP chief economist Shane Oliver.

“A rate cut is not guaranteed though with the main arguments to hold being that unemployment is still low, home prices are rising again and share markets are more settled.

“But we believe these are weak reasons to hold as: there is no evidence that low unemployment is putting upwards pressure on wages growth and forward-looking jobs indicators along with anecdotal evidence point to slower jobs growth ahead.

“The RBA has to set rates for the average of the economy not just the housing market and there is not much it can do to fix poor housing affordability; and while share markets are calm the threat to growth from Trump’s tariffs remains high.”

The money market has priced in almost a 100 per cent probability of a cut in the week ahead and nearly four cuts out to early next year.

On the local bourse, the futures market is pointing to a slight 0.1 per cent lift to 8612 points for the ASX 200 upon opening. Over the past five trading days, the index has gained 1.04 per cent and is currently 0.42 per cent off of its 52-week high.

There will be a lack of fresh leads from US markets on Monday, however, as Wall Street was closed for the July 4th holidays on Friday, although on the previous day the benchmark S&P 500 and tech-heavy Nasdaq closed at record levels.

Across Europe over the weekend, stock markets mostly fell while the US dollar largely retreated as international tensions over tariffs dominated sentiment.

Traders digested news of Congress narrowly passing US President Donald Trump’s signature tax and spending bill that analysts argue risks ballooning national debt and widening inflation.

On tariffs, Mr Trump said he planned to start sending letters informing trading partners of their import levies, as negotiations to avoid higher US rates entered the final stretch.

In Europe markets fell, and sentiment was hit by China moving forward with “anti-dumping” taxes of up to 34.9 per cent on cognac and other brandy imported from the bloc if producers don’t voluntarily raise prices.

But the main focus in the week ahead for global markets will be tariffs.

“We draw ever closer to Wednesday’s reciprocal tariff deadline, and thus traders are likely to grow jittery despite the tentative signals of a potential pathway to a deal,” Rostro trading group chief market analyst Joshua Mahony said.

Governments around the world have fought to hammer out tariff deals with Washington after Mr Trump unveiled levies in early April.

Investors will also respond to the OPEC+ alliance’s decision on Saturday to further increase oil output in August to 548,000 barrels per day.

Additional reporting: AFP