Monthly Market Commentary
As at 31 July 2026
Economic review
Australia
Inflation cools more than expected in June
Australian headline CPI fell -0.1% MoM in June (vs +0.2% expected), driven mainly by transport (-2.7% MoM) due to lower petrol prices. Headline inflation eased to 3.8% YoY (vs 4.0% expected) but remains above the RBA’s 2–3% target band. Trimmed mean inflation was steady at 3.6%, slightly below expectations (3.7%) and the RBA forecast (3.8%), indicating recent oil price increases are having less impact than anticipated.
Australian house prices have softened, down -0.7% in Q2 2026, likely reflecting some loss of investor confidence post the recent tax changes. However, house prices remain higher over the past year, up 7.3%.
Unemployment rate remained unchanged at 4.4%, as employment data showed a strong gain of 76,300.
Business and consumer confidence data released in July showed some improvement, likely reflecting the improving situation in the Middle East at the time the surveys were taken which was before the recent escalation, and lower fuel prices. However, it still suggests that businesses and consumers remain cautious.
International
Strait of Hormuz closes again
US–Iran tensions escalated sharply in July after Iran attacked ships in the Strait of Hormuz and announced the Strait’s closure, prompting US retaliatory strikes on Iranian military targets. Iran then launched attacks across several Gulf states; including Bahrain, Kuwait, Qatar, Jordan and Oman. On July 10, President Trump declared that the ceasefire was over, and Iran also formally said it had abandoned the deal, making a near-term return to the ceasefire highly unlikely.
US authorities introduced additional tariffs. New tariffs (10.0%–12.5%) took effect on 60 trading partners, replacing expiring tariffs. The US also imposed a 50% tariff on about $18 billion of Canadian goods - including alcoholic beverages, dairy, and a broad range of consumer products - explicitly framing it as a pressure tactic ahead of the next United States-Mexico-Canada Agreement (USMCA) renegotiation.
The Fed held rates unchanged at its July meeting, as US economic activity expanded at a solid pace despite elevated uncertainty. The ECB and BOE also kept rates unchanged while the RBNZ increased its cash rate by 25bps to 2.50%.
Market Review
Australian shares rose, with the energy sector outperforming
Australian shares rose 2.1% in July; outperforming international shares (hedged), up 0.3%.
The energy sector was the strongest performer, up 11.6%, supported by rising oil prices; followed by the financials sector up 7.6%, as banks benefitted from a rotation into defensive shares, and an increased expectation that interest rates had peaked.
The information technology sector was the weakest performer for the month, down -3.7%, following a technology sell-off amid concerns over AI spending.
International shares rose modestly, but sector returns were volatile
International shares (hedged) were up modestly, by 0.3%, but this masked volatility in the underlying sector returns.
The best performing sector was the energy sector, up 13.0%, followed by the financials sector up 4.7%. The largest detractor was the information technology sector, which fell -2.6% due to a global technology sell-off.
Emerging market shares (unhedged) fell -4.4%, as geopolitical tensions increased oil prices, negatively impacting emerging markets that are heavily reliant on oil imports. Market downturns in Asia, particularly Korea, also weighed heavily on returns.
Australian fixed interest markets moved lower
Australian government bond yields moved higher across the curve in July, driven by global energy price volatility and sticky domestic inflation expectations.
Australian 10-year government bond yields increased by roughly 11-15 bps.
International credit spreads remained exceptionally tight by historical standards, supported by robust institutional demand and attractive all-in yields.
Australian commodity prices rose
The RBA’s Index of Commodity Prices rose 0.6% in July, rebounding from a 2.2% decline in June. Gains in non-rural and rural commodity prices more than offset a decline in base metals.
Australian Dollar (AUD) rose as US Dollar (USD) softened
The AUD rose 1.4% against the USD, ending the month at US$0.70. This rebound was primarily driven by a softer US dollar and shifting expectations around global central bank policies.
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