Why the RBA Must Cut Rates Next Month or Risk a Broken Economy
By Dale Gillham
This month’s interest rate decision is shaping up as one of the easiest calls the RBA has had in years, yet the policymakers sit frozen as the economy weakens around them. The warning signs are already here, and the cracks in the economy are becoming impossible to ignore.
The signs that the economy is already cracking
Unemployment has climbed to 4.5 per cent, the highest level since 2021, while employment growth has slowed. The labour market is clearly weakening, particularly as government spending slows and sectors tied to programs like the NDIS face tightening budgets and hiring pressure.
That matters more than many people realise. The care economy has been one of Australia’s biggest sources of employment growth over the past few years. In some periods, NDIS-related jobs accounted for close to one in every five new jobs created nationally. If that spending slows, the hit to employment could be far larger than markets currently expect.
At the same time, inflation is easing and the market is starting to realise what has really been driving much of the inflation problem all along: Oil.
Why the price of oil plays a key role
It has now spent almost two months trying to break above the US$100 to US$110 range and failed each time. That matters because markets have already stress-tested the worst-case geopolitical scenario. Every major escalation in the Middle East sent oil to $110 yet each time negotiations or ceasefire discussions emerged, prices collapsed almost instantly, including multiple double-digit percentage falls in a single day. That tells you something important.
The market already knows where the panic ceiling for oil likely sits, but it may not yet be pricing in the downside if broader negotiations continue. In other words, we now have a much clearer picture of the upside risk for energy prices, while the bigger surprise may now come from how quickly inflation falls if oil keeps retreating.
Why the RBA must cut interest rates
Meanwhile, higher interest rates have already crushed borrowing power, consumer confidence is fading, businesses are slowing hiring, and households are cutting spending. Proposed changes to negative gearing and capital gains tax are also weighing on investor confidence at the exact moment Australia is already struggling to build enough homes.
The RBA risks solving yesterday’s inflation problem while creating tomorrow’s recession. That’s the real danger now. Interest rates work with a lag. The damage from previous hikes is only just starting to hit the economy and by the time the slowdown becomes obvious in the data, unemployment may already be out of control.
At some point, the focus must shift from fighting inflation to protecting growth because if unemployment keeps rising while productivity keeps falling, the economy won’t need another rate hike, it will need a rescue package.
What are the best and worst-performing sectors last week?
The best-performing sectors included Consumer Discretionary, up 4.38 per cent, followed by Materials, up 3.34 per cent and Real Estate, up 2.38 per cent. The worst performing sectors included Energy, down 3.28 per cent, followed by Communication Services, down 2.48 per cent and Utilities, down 1.56 per cent.
The best performing stocks in the ASX top 100 included Fisher & Paykel Healthcare, up 12.73 per cent, followed by James Hardie, up 12.20 per cent and South32 Limited, up 10.57 per cent. The worst-performing stocks included ASX Limited, down 22.30 per cent, followed by Dexus, down 7.73 per cent and Endeavour Group Ltd, down 6.49 per cent.
What's next for the Australian stock market?
The All Ordinaries Index staged a strong recovery last week, finishing up just under 1 per cent after buyers stepped in aggressively around the 8,800 level on Friday.
What makes that move particularly encouraging is the context. Since June 2025, buyers have generally allowed the market to drift toward 8,600 before providing meaningful support. The fact they were willing to defend 8,800 suggests confidence may be returning sooner than many expected.
Even more interesting was the surge in trading activity. Last week's volume was the highest we've seen since April, when markets were reacting to the major tariff announcements. Back then, elevated volume was easy to explain because investors were responding to a significant global catalyst. This time, volume has exploded despite a relatively quiet news backdrop, which often signals that larger players are positioning themselves ahead of a meaningful move.
From a technical perspective, the next major target appears to be 9,200. History suggests sellers have consistently emerged around that level, making it the key battleground to watch in the weeks ahead. However, if volume remains elevated or continues to build as the market advances, there is a growing possibility that we have already seen one of the year's major lows and that the next move could be toward fresh all-time highs.
That's why preparation is critical right now. Historically, the market tends to present only a handful of high-quality buying opportunities each year, and these periods of weakness often create them. Many quality stocks have been dragged lower during the recent pullback, potentially setting the stage for some of the best opportunities of the second half of the year.
Good luck and good trading.
Dale Gillham is the Chief Analyst at Wealth Within and the international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of the award-winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good bookstores and online.
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