Quick Facts
The Reserve Bank of Australia (RBA) decided to leave the cash rate unchanged at 3.85% overnight, sending shockwaves through global financial markets.
Australian Interest Rate Decision: RBA Keeps Monetary Policy Unchanged, Surprising Markets July 8, 2025
In a surprise move, the Reserve Bank of Australia (RBA) decided to leave the cash rate unchanged at 3.85% overnight, sending shockwaves through the global financial markets. This unexpected decision has sparked a mixed reaction from market participants, with some wondering what implications this may have on the Australian economy and beyond.
The RBA’s Dilemma
The RBA’s Governing Board, led by Governor Philip Lowe, had been under immense pressure to raise interest rates to combat growing inflation concerns. With inflation soaring to a five-year high of 3.6% in June, the RBA was expected to follow in the footsteps of other major central banks and hike rates to curb rising prices. However, the Board appears to have taken a more cautious approach, choosing instead to maintain the current cash rate.
This decision may have been influenced by the recent decline in commodity prices, which has reduced inflationary pressures. The RBA may also be taking into account the impact of a rate hike on the Australian economy, particularly in the housing market, where rising mortgage rates could exacerbate the already fragile situation.
Tariffs: The New Conundrum
Meanwhile, on the other side of the Pacific, US President Donald Trump unveiled the first wave of tariffs on Chinese goods, sparking an all-out trade war. The Trump administration has imposed a 25% tariff on over $50 billion worth of Chinese goods, including machinery, electronics, and chemicals. China has retaliated by imposing tariffs on $34 billion worth of US goods, including soybeans, corn, and wheat.
This trade war has led to a series of negative consequences for global markets, including a plunge in the US dollar and a surge in the euro. The USD/CAD currency pair has fallen to a one-year low, while the EUR/USD pair has risen to its strongest level in over a year.
Currencies in Focus
The RBA’s decision to leave the cash rate unchanged has had a mixed impact on the Australian dollar. The AUD/USD currency pair has fallen slightly, driven by the decline in the US dollar. However, the AUD/JPY currency pair has risen, benefiting from the yen’s weakness in the face of falling Japanese equities.
The euro, on the other hand, has emerged as a winner, driven by the trade war and speculation about potential tariffs on certain European goods. The EUR/USD currency pair has risen to a 14-month high, with many analysts predicting further gains in the coming days.
Stocks Gaining Ground
Despite the uncertainty surrounding the trade war, global stock markets have been gaining ground in recent days. The S&P 500 index has risen almost 2% in the past week, driven by a surge in technology and healthcare stocks. The Dow Jones Industrial Average has also risen, while the NASDAQ composite has reached new all-time highs.
The RBA’s decision to leave the cash rate unchanged has had a mixed impact on Australian stocks. The S&P/ASX 200 index has fallen slightly, driven by the decline in the energy and financial sectors. However, the materials sector has risen, benefiting from the decline in commodity prices.
Eurozone Tariff Rumors
Rumors are circulating about potential tariffs on certain Eurozone goods, which has led to a surge in the euro. Italy is said to be in the crosshairs, with US trade representatives threatening to impose tariffs on Italian goods, including wine and cheese.
This has led to a spike in the EUR/CHF currency pair, driven by speculation about potential tariffs on Swiss imports to the United States. The Swiss National Bank has been under pressure to intervene in the currency market, but so far has chosen to maintain its neutrality.
