Markets Eye Melbourne Cup Day Rate Cut As Unemployment Drops

Unemployment Figures Keep Interest Rate Cut Hopes Alive

Unemployment dropped back to 4.2% in July, down from 4.3% the previous month, as 20,000 more people found work. While this slight improvement might seem like good news for the economy, it's what it means for your home loan that really matters. Markets are now split on whether the RBA will cut rates again in September, but economists from the Big Four banks are pointing to November - specifically Melbourne Cup Day - for the next reduction that could save mortgage holders hundreds of dollars monthly.

Cash Rate Could Drop to 3.35% by Year's End

The unemployment figure puts us back where we were in May, sitting in the 4-4.3% range we've seen since December last year. What makes this particularly interesting is that inflation has continued cooling during this same period, with annual trimmed mean inflation dropping from 3.2% in December to 2.7% in July.

As of 11 August, traders are backing successive 25 basis point cuts, which would bring the cash rate down to 3.35%. However, economists from all major banks are predicting the RBA will hold steady in September before delivering what could be the final cut of 2025 on Melbourne Cup Day in November.

Many believe that any decision will come down to the labour market which any sudden movement upwards on the unemployment rate would likely trigger for an earlier cut. However, given the steady rate of unemployment that seems unlikely.

Why Melbourne Cup Day Keeps Coming Up for Rate Decisions

What's more likely though is a cut before the end of the year. Since 2019, Melbourne Cup Day has seen three previous rate changes, making it something of a tradition for monetary policy shifts. The statistics back this up - since 1991, about one in seven cash rate movements have occurred in November. So whilst the immediate signs might not signal any rate change, the outlook is looking good for the tail end of the year.

What This Means for Different Borrower Situations

If you're currently paying off a $500,000 home loan at today's rates, even a 0.25% reduction could potentially save you around $70-80 per month in repayments. For those with larger mortgages or multiple investment properties, the savings multiply significantly.

Variable rate borrowers stand to benefit immediately from any cuts, while those locked into fixed rates might want to consider their options as these terms expire. The timing could be particularly relevant if you're coming off a fixed rate in late 2025 or early 2026.

What does the future hold?

Confidence in the economy is increasing as investors, and banks, see improvements across various sectors and industries, and confidence often leads to rates cuts. That increased confidence signals that rate cuts could be on the horizon with Governor Bullock's recently suggesting there being room for additional cuts beyond what's already been delivered. "The forecasts imply that the cash rate might need to be a bit lower than it is today to keep inflation low and stable and employment growing," she told media on Tuesday.

The RBA's forecasts assume "a couple more cuts" are built into their unemployment and inflation projections over the next couple of years. However, Bullock was careful to note there's "still a lot of uncertainty" around the exact timing and magnitude of these moves.

What Borrowers Should Consider Right Now

With rate cuts potentially on the horizon, now might be the time to review your current home loan arrangement. If you're on a variable rate, you could benefit automatically from any reductions. Those considering refinancing might want to factor in the possibility of lower rates when comparing loan options.

It's also worth considering your offset account strategy - if rates do fall, the value of parking extra cash in offset accounts decreases relative to other investment options. Personal loan and credit card holders should remember that these rates don't always move in lockstep with the cash rate, so shopping around remains important regardless of RBA decisions.

The Bottom Line on Rate Cut Timing

While unemployment dropping to 4.2% keeps the door open for rate relief, the most likely scenario is a Melbourne Cup Day rate cut rather than a September surprise. This gives borrowers a few more months to prepare and potentially position themselves for lower repayments. When comparing home loan options, consider both current rates and how quickly lenders typically pass on RBA cuts - some are faster than others, and every day counts when you're paying interest on hundreds of thousands of dollars.