Adding to this is the chatter around our central bank, which has been under pressure to cut rates, but has largely resisted this, choosing instead to keep the cash rate steady at 4.35% – a position it’s held since November 2023.

Reflecting on how the Aussie economy has performed in 2024 – and how it might fare in the following year, given various headwinds including a second Trump administration in the U.S. and a continuing slowdown in China – ANZ senior economist Catherine Birch contributed several thoughts on the outlook.

Starting with the recent GDP numbers, Ms Birch said it showed the impact high inflation has been having on Australia.

“We did see the slowest annual GDP growth in Australia outside of the pandemic, since the 1990s recession, and that does show the economy is really feeling it at the moment,” Ms Birch explained.

“We have seen inflation really be a challenge for the economy. That has certainly caused some challenges for many industries and parts of the economy: construction is a big one in particular.

“We know a lot of construction firms have really struggled with the sharp rise we’ve seen in input costs. And some of the supply disruptions have really constrained how much can really be done, and therefore limiting growth as well.”

In response to high inflation, the RBA had taken a tough line on rate cuts – and had received pushback for this. But Ms Birch said it’s important to remember Australia had differed from other countries in terms of its initial experience with inflation, and how the RBA had chosen to respond to this.

“We saw inflation pick up later, we saw it peak later, but it’s also been slower to come down as well,” she said.

“And one of the differences, not only in the timing of rate changes versus other central banks, is that the RBA took our cash rate to 4.35% – well below a lot of comparable economies.

“For example, over in New Zealand, their OCR peaked at 5.5%, we saw over in the US, the rates peaked at 5.25-5.5% as well.

“So one of the reasons the RBA did that was that they were willing to tolerate a slower return of inflation back to target with the benefit being that unemployment wouldn’t rise as much if they took rates even higher to try and get inflation back to target sooner.”

Indeed, evidence of a consistently resilient labour market in Australia seems to have justified the Reserve Bank’s actions.

Looking into the new year, it was likely that – unexpected data notwithstanding – the RBA’s cautious policy would be likely to continue.

“We’re expecting that the RBA will start to cut rates in May and that there will be only two 25 basis point rate cuts in this cycle – so getting down to 3.85% by August next year, and then staying there,” Ms Birch said.

“A lot of people might not want to hear that sort of forecast. It will depend quite a bit on the data as to when the cuts start.

“If we see inflation and labour market data and household spending becoming weaker than expected over the next couple of months, it’s possible that they may start to cut rates in February.”

Turning to global headwinds in 2025, Ms Birch said the key word guiding predictions for both the Australian dollar and commodity prices was ‘volatility.’

The former would be likely to drop in the first half of the year, influenced by the anticipated impacts of Donald Trump’s promised tariff policy.

“We think that we’ll be seeing, by the middle of 2025, the Aussie dollar at around 63 US cents, but potentially there are periods where it gets lower, closer towards the 60 cents mark,” she said.

However, Ms Birch added several variables would enable Australia’s economy to survive these headwinds, with the dollar moving back towards 67 cents in the second half of 2025.

“We think Australia is still relatively well placed compared to a lot of other economies in terms of our growth outlook, and also our ability to deal with any shocks coming up as well, so that room we have on the fiscal policy side and monetary policy side,” she said.

Geopolitical and global economic volatility would likely also retain the strength of gold as a safe haven, she added, while other commodities would be shaped by trends coming out of Beijing.

“We think about something like lithium – the oversupply in batteries that we’re seeing in China will likely limit the near-term outlook at least, but the longer-term outlook still looks really positive,” Ms Birch said.

“And then of course there’s the China story as well: With that slowdown, that structural weakness that we’re seeing in the property sector only being partly offset by some of the stimulus measures and the move towards those new productive forces.

“So more investment in renewables and things like EVs and green infrastructure. Now, those sorts of things should boost things like aluminium and copper and some supply disruptions in those metals should also protect any price downside.”

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This comes after the country just last week got its latest quarterly inflation data.

Consumer Price Index (CPI) growth came in at 2.8% reflecting energy rebates and fuel price declines; while Trimmed Mean Inflation (TMI) remains higher at 3.5%.

While headline inflation will decline for a time, TMI – also known as underlying inflation – is more indicative of inflation momentum, and it remains too high.

The ASX200 sold off after last week’s CPI data release, perhaps counterintuitively – but it’s evidence most analysts and traders were paying closer attention to TMI rather than its more volatile cousin CPI.

TMI is, for all intents and purposes, Australia’s answer to “core inflation.”

But while it’s still more embedded than what CPI suggests – there’s still reasons to be optimistic. Don’t forget that when money markets pushed RBA rate cut expectations into 2HCY2025 last week, that’s right about when the RBA has been consistently telling Australians it will start cutting rates.

So, in a way, it’s only a shock move if you haven’t been paying much attention – or putting faith into – what the RBA says in its guidance.

A recent note from UBS pointed out overall resilience in the Australian economy.

Analysts for the investment bank noted September home loan data was up nearly +19% versus this time last year (YoY) at the same time dwelling prices moderated to +6% YoY in October.

This overall tone of a hot economy slowly cooling down was backed up by jobs ads data from elsewhere that show advertisements remain higher than pre-COVID.

The context here is the jobs ad market has, at the same time, fallen from its 2022 peak – suggesting a slowly cooling labour market (which would lend itself to a ‘soft landing’ scenario.)

Worth considering: Unemployment in Australia has been hovering around 4% for a good while, now – historically low.

Analysts from the investment bank predict the ALP will deliver its third surplus in a row next year, which has gained a new kind of currency given that Albanese started campaigning over the weekend.

Slashing student HECS/HELP debt and taking the same knife to green tape are some of the first promises we’ve heard from the Labor leader. 

Why exactly normal Australians in a cost of living crisis would care to hear about environmental regulation first and foremost remains unclear.

(It would also probably age poorly if we have a particularly bad bushfire season this summer.)

At any rate – the interest rate is most likely set to become more and more politically charged in the months ahead.

Following the Liberal National Party (LNP) victory in the Queensland state election – a campaign rife with American cultural overhead given abortion became an issue – it appears the ALP are waking up and starting to mobilise for the 2025 election.

So will the RBA cut before around June next year?

Bar a shock spike in unemployment, or a shock fall in housing prices nationally, it appears unlikely in my view. But we’re probably going to hear a lot more about inflation for a while yet.

And, like almost every other one of the 44 countries that have had elections in 2024 – broadly, the cost of living remains a key focus for most people on Earth right now. Those parties doing a good job of messaging on that issue appear to be better off, no matter where you are.

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The Reserve Bank of Australia elected to leave the rate on-hold at 4.35% during its August 5-6 meeting, with this being the seventh consecutive meeting without a change, since the cash rate was raised back in November 2023, from 4.10%.

Leading up to the decision, investment bank analysts had predicted the RBA would keep it unmoved, with this confidence largely boosted by a CPI reading released the previous week which showed a trimming of mean inflation for the June quarter to 3.9%, down from 4.0% in March, with this being lower than the market had expected.

However, following the decision, Reserve Bank Governor Michele Bullock told the press: “Make no mistake: inflation is still too high, and the board does remain concerned about the degree of excess demand in the economy”.

Explaining that the inflation rise had started during the Covid-19 pandemic – when supply shocks coalesced with growing demand for goods – Ms Bullock said the former had largely worked their way through the system, but demand was continuing strong.

With this in mind, she said the RBA needed to ‘stay the course’ to keep inflation in check, and ideally get it back to the target range of between 2 and 3%.

“The more inflation remains elevated, the more it hurts everyone,” she added.

Saxo Head of FX Strategy Charu Chanana said that while the decision to pause the cash rate had been priced-in, a lack of guidance from the RBA regarding future strategies to tackle inflation was concerning.

“While markets have removed the odds of another rate hike from the RBA after the softer Q2 CPI last week, there were no clear signals from the meeting for the markets to start considering rate cuts,” she said.

She noted that changes in the global economy had now put the onus on other central banks to consider rate cuts.

Thus, stronger statement might have been needed from the RBA, given recent global economic volatility – with recession concerns still in the background, despite markets making a recovery following a two-day rout on Wall Street at the beginning of the week.

Australia’s currency could be particularly hard-hit by hints of recession – Ms Chanana said – given the likely negative impact on commodity prices, a key driver for the Australian economy.

“There has been a sharp selloff in global equity markets amid increasing concerns about a US recession,” Ms Chanana said.

“This has accelerated calls for the Federal Reserve to deliver rate cuts sooner, potentially even before the September meeting, or to go big with a 50bps cut in September.

“Given the shift in the macro backdrop, the RBA lack of guidance on its rate cut plans at the August meeting seems to be a misstep: this could be problematic if global growth deteriorates beyond the soft landing many have hoped for.”

Head of macroeconomic forecasting for Oxford Economics Australia Sean Langcake said the August meeting had been a ‘close-run decision’ until the CPI release had come in last week.

But he expressed concern about the inconsistency of what the Reserve Bank was saying about sticky inflation in the economy, and what they were actually doing.

“The RBA’s statement remains vigilant against upside risks to inflation. But once again, the RBA’s cautious and hawkish messaging has not been backed up with any action,” he said.

“The RBA’s forecasts are projecting a more volatile path for inflation due to the impact of government policies announced in the last budget.”

He added that the RBA seemed to be watching the Australian economy for signs of sluggishness – appearing concerned about a weaker outlook for jobs in particular, although a rate cut this time around could have kickstarted a pushback on inflation trends.

“Interestingly, underlying inflation is now expected to chart a slower course back to the midpoint of the target range,” he said.

“But this outlook has not stirred the RBA to action this month. Indeed, this outlook is tempered by a slightly weaker outlook for the labour market than the one presented in the May forecasts.”

Mr Langcake said a rate cut was not likely until early 2025.

The decision – which was predicted by all four major banks – means the cash rate has remained steady since November 2023, when it moved up from a previous reading of 4.10.

Investment bank analysts echoed these predictions, with Morgan Stanley, Citigroup and UBS all expecting the rate to remain on-hold in August, and two of these anticipated the RBA remaining hawkish on the pause until mid-2025, before cutting again.

Morgan Stanley was of the belief that rates could drop in May 2025, while UBS was convinced the cut would come in August of that year.

Head of FX Strategy Charu Chanana at Saxo had also anticipated that rates would remain at 4.35%, citing a somewhat optimistic inflation reading released on July 31, which showed mean CPI for the June quarter had been trimmed back to 3.9%, compared to 4.0% in March.

This data was higher than the RBA’s prediction 3.8% CPI for the June quarter, although the market had set its prediction at 4.0%.

“Last week’s softer than expected inflation report has eliminated the prospect of a rate hike from the RBA,” Ms Chanana said.

“The Overnight Index Swap (OIS) curve is now factoring in a November rate cut from the RBA, indicating the RBA is unlikely to support the AUD.

“The AUD is also under pressure due to a shift in global sentiment adversely affecting activity currencies.

“Additionally, the AUD is at risk due to the weakness in the Chinese economy, and is likely to lose ground against other activity currencies like the NZD, where rate cuts are largely priced in.”

Previous to the CPI reading, many economists had priced in a rate rise in August.

In its statement on Tuesday, the RBA committee said that longer-term patterns showed that inflation was a persistent issue, stating that ‘In year-ended terms, underlying inflation has now been above the midpoint of the target for 11 consecutive quarters.’

They also spoke of uncertainty about the future performance of the Australian economy overall, noting that while labour costs remained strong, there had been a lag in GDP growth, a rise in unemployment, and reports of businesses feeling under pressure.

The latter certainly appeared to be the market’s interpretation, as the ASX200 moved up sharply by 1% on the news.

On a surface level, the data was on-target with expectations, as the CPI rose 1% quarter-on-quarter, in addition to a year-on-year increase of 3.8% – the latter marking first time it had risen since late 2022.

The mean figure for the June quarter sat at 3.9%, a trim back from March’s 4.0%. This was slightly higher than the RBA’s expectations of 3.8%, but lower than market expectations which had placed it at 4.0%.

Tradeables registered a rise of 1.2% compared to the previous quarter, and this was somewhat surprising, given the earlier trend of inflation softening for this goods category based on weaker consumer demand and supply disruptions being resolved.

However, it appeared that rising costs in food, clothing and fuel during this period had reversed the trend, at least for now.

For non-tradeables – which remained steady at 5.0% quarter-on-quarter – housing was still the main story, as very low vacancy rates translated to rental prices remaining high, with a rise of 7.3% over 12 months to the June quarter, although this was down from 7.8 per cent in the March quarter.

Head of Macroeconomic Forecasting for Oxford Economics Australia Sean Langcake said that inflation pressures connected to rents and new housing construction were likely to remain strong – albeit with some relief from expansion of Commonwealth Rent Assistance, which should show up in the Q3 figures.

However, he said softening in other parts of the non-tradeable category could indicate a weakening in core inflation outside of housing – and predicted that the Reserve Bank of Australia (RBA) would keep rates on-hold next week, although the possibility of a later hike was still in the offing.

“This is a challenging print for the RBA, and leaves the August policy decision finely poised,” Mr Langcake said.

“Headline inflation is in line with the forecasts presented to the board in May, which suggests the economy is still on the path the RBA anticipated three months ago.

“But inflation pressures remain broad and persistent, and there is still a strong case for tighter policy.”

Saxo Head of FX Strategy Charu Chanana also expected rates to remain on hold, although she warned that the RBA’s more cautious actions up to now in comparison to other central banks still allowed scope for later hikes.

“The softer inflation print would be a relief, and takes the pressure off the RBA to hike rates,” she said.

“The AUD could (now) have room to extend its slide lower against the USD and NZD – however, it is worth noting that expecting rate cuts from the RBA may still be premature.

“Jobs growth and retail sales remain strong, and the RBA has raised rates by less than other G10 central banks. This means dip-buyers could potentially come in if AUD/USD slips towards its support level at 0.6465.”

This comes as expectations were tipping a consensus call of 3.8%. The ASX200 immediately sunk sharply downwards.

To remind, Australian unemployment currently sits at 4% – after reversing from 4.1% in April. Still, Australia’s labour market remains historically tight.

Orthodox economic theory states lower unemployment portends higher inflation as more people have the money and mobility to spend.

The RBA maintains that inflation won’t come down comfortably until 2026. Last year, it had been previously saying late 2025.

Making matters more complicated, the pace of Australian disinflation has actually stalled through 2024.

That has traders at Morgan Stanley nervous, who suspect the August RBA meeting could see the national interest rate hiked further – not cut. That would likely be a disaster for already depressed sentiment in Australia wholemeal – especially seeing as the RBA has flagged indebted homeowners are being forced to sell.

A ‘collapse’ in house prices has long been feared in Australia, a country where property investment is the bread and butter of those who have – and a reasonable sore point for those who have not.

But through the COVID era, services inflation – mainly rents, and home prices – have been instrumental in keeping Australian inflation higher than where the RBA would like it.

Crude oil prices have also produced pressure across the last few years, with higher fuel costs impacting every single part of any country’s economy.

While relief on major energy benchmark commodities is now the quo (compared to recent history,) energy costs remain a volatile aspect on headline inflation reads.

The move had been widely anticipated by all of Australia’s big 4 banks, as well as investment bank analysts at Morgan Stanley, Citigroup and UBS.

Morgan Staley see the next meeting – in August, under the RBA’s 2024 meeting calendar – as posing a distinct risk of a rate rise.

Markets will now turn towards digesting the RBA minutes, but at this point, the story is pretty familiar to traders. We might get a cut later this year, but a lot of firms are calling early 2025.

As for the ASX, if there’s a widespread caution that the RBA could raise, it wasn’t obvious on the bourse.

The ASX200 posted its best gains in two weeks on Tuesday, up 0.9% to kick off lunchtime. All sectors were in the green.

Many analysts had been calling a November rate rise, but ANZ, long in Camp November, recently pushed out its forecast to early 2025. No shortage of counterparts have followed.

Markets in the US are divided on whether the US will cut this year in September or closer to Christmas. However, a 2024 cut is being priced in far stronger for the United States than what is the case down under.

Speaking to the media after Tuesday’s decision to keep the cash rate on hold at 4.35 percent, RBA Governor Michele Bullock said recent data – including retail sales released on the same day – had indicated the inflationary dangers were still present, meaning the central bank could not rule out a ‘bumpy’ road ahead to keep the economy on track.

“We have made progress here, and we’re not going to jeopardise that,” Ms Bullock said.

“The rise in interest rates that has been required to bring down inflation has been painful to many people. Inflation though, as I’ve said before, is bad for everyone and we have to see the job through.”

Data from the Australian Bureau of Statistics on Tuesday showed retail sales volumes remaining in decline, but prices rising 0.6 percent quarter on quarter in the first three months of this year.

Ms Bullock said getting inflation back to target would take time, but that the board believed this would be possible to achieve by next year.

The RBA increased the cash rate by 0.25 percent in October last year, from 4.10 to 4.35 percent, where it has remained ever since, with four successive decisions to keep it on hold. The decision to keep rates at the same level again on Tuesday was broadly expected by economists, with only minor predictions of another hike.

Governor Bullock noted the varied experiences of Australian households in navigating the current economic situation.

“On the one hand, there might be people who are managing to save despite high inflation and interest rates – in fact, some of those with mortgages are still making extra payments into offset and redraw accounts on top of their required payments,” she said.

“But on the other hand, we also know there are households that are really struggling to make ends meet: these people don’t have a lot of extra savings, they might be working a second job, cutting back on discretionary items, making difficult decisions such as putting off medical appointments.

“These people are doing it very tough, and we are conscious of this. One of the outcomes of this is that household consumption is very weak: we can see that in the retail figures from last week.”

Wading through this, the RBA needed to maintain its focus on reducing inflation while also keeping employment growing, Ms Bullock added.

“This is the difficult path that we are trying to navigate,” she said.

“Right now, we believe that rates are at the right level to achieve this: but there are risks, and at this stage the board is not ruling anything out.”

The S&P/ASX 200 bounced 90 points or 1.41 per cent.  

Energy producers and banks led the advance following gains in European stocks and US equity futures during a US market holiday.

Coal miners plunged after Queensland increased mining royalties to take advantage of record prices.

Stocks picked themselves off a 19-month low as a US holiday gave investors a chance to reassess after two weeks of relentless selling. European stocks rebounded overnight. The pan-European Stoxx 600 index gained 0.96 per cent.

A steady rise in US equity futures sharpened hopes for a positive session tonight. S&P 500 futures were up 52 points or 1.42 per cent as the Australian session neared its conclusion.

“Stock futures are shaking off some of the pessimism that we saw last week, and this is pointing to a higher open for both the European and US [markets],” Naeem Aslam, chief market analyst at AVATrade, said.

“There is no doubt that the equity markets on both sides of the world have been massively oversold, bargain hunters have been preparing their lists for a while, and now they are out shopping.”

The Australian market added to gains after the Reserve Bank threw cold water on the prospect interest rates will hit 4 per cent this year. Governor Philip Lowe told a Sydney audience he thought it “unlikely”.

Lowe also doused worries that the bank will follow the US Federal Reserve by raising the cash rate target by 75 basis points next month. Lowe said he expected discussions to revolve around whether to hike by 25 or 50 points.

“The board discussed 25bp or 50bp increase to cash rate at the June meeting and I expect to discuss 25bp and 50bp in July,” he said.

Consumer confidence improved a fraction last week, but remained near two-year lows. The ANZ-Roy Morgan confidence index edged up 1.6 per cent, reclaiming a fraction of the previous week’s 7.6 per cent slide. Across the pond, Westpac’s New Zealand confidence index hit a record low.

Mining and energy stocks rebounded after key commodity prices recovered overnight. Uranium miner Paladin Energy bounced 7.96 per cent, coal miner Whitehaven 5.29 per cent and Nickel Industries 6.03 per cent.

Diversified miner OZ Minerals gained 5.91 per cent. Beach Energy put on 4.52 per cent.

Among the heavyweights, Fortescue Metals firmed 3.47 per cent, Woodside Energy 3.26 per cent and Rio Tinto 2.27 per cent.

The high-street banks mounted their biggest rally in more than a month after the financial sector spearheaded gains in Europe. NAB put on 3.8 per cent, Westpac 2.71 per cent, ANZ 2.62 per cent and CBA 2.42 per cent.

Confirmation of full-year guidance lifted GrainCorp 4.95 per cent. The agribusiness expects to increase earnings by 90 per cent this year.

Australian Agricultural Company edged up 0.89 per cent despite news Managing Director and CEO Hugh Killen will stand down after four years at the helm. Chief Operating Officer Dave Harris will act as CEO until a permanent replacement is found.

Explorer Lode Resources briefly doubled in value after intersecting high-grade silver-lead-zinc-copper mineralisation at shallow depths at its Tangoa West prospect in NSW. The share price jumped from 15 cents yesterday to 34 cents before paring its advance to 20 cents, a gain of 33.33 per cent.

Coal miners plunged after the Queensland government unveiled a tiered system that will direct more royalties into state coffers. The new system increases the government’s percentage take as prices rise.

The unexpected announcement caused carnage. Stanmore Resources briefly lost a fifth of its value before trimming its loss to 9.85 per cent. Coronado shed 6.99 per cent. Terracom dropped 15.38 per cent.

Healthcare and property companies eased as investors favoured sectors with more upside in a market recovery. CSL dropped 1.15 per cent, Sonic Healthcare 2.1 per cent and Cochlear 1.55 per cent.

Goodman Group retreated 0.9 per cent, Mirvac 2.86 per cent and Centuria REIT 2.03 per cent.

Digital health firm ResApp slumped 28.57 per cent after test results of its Covid-19 smartphone algorithm failed to meet the terms of an increased takeover offer from global giant Pfizer. The Data Confirmation Study produced results below the thresholds, meaning conditions for an offer of 20.7 cents per share were not met. Instead, ResApp said shareholders will receive a lower offer of 14.6 cents per share.

Premier Investments dropped 2.29 per cent as its shares traded without the right to the latest dividend.

A broadly positive session on Asian markets saw the Asia Dow put on 1.73 per cent, Hong Kong’s Hang Seng 1.42 per cent and Japan’s Nikkei 2.13 per cent. China’s Shanghai Composite fell 0.43 per cent.

Oil added to last night’s gains. Brent crude rose 93 US cents or 0.8 per cent to US$115.06 a barrel.

Gold declined US$3.30 or 0.2 per cent to US$1,837.30 an ounce as the US dollar rallied.

The dollar drifted down 0.17 per cent to 69.56 US cents.