Australian services return to growth but business confidence hits 2.5-year low

Australia's services sector returned to growth in June, according to a closely watched survey, but the expansion was driven by staffing rather than demand, and business confidence slumped to a two-and-a-half-year low. The mixed reading offers little clarity for the Reserve Bank of Australia as it weighs the timing of its next rate move.

The headline services PMI edged back above the 50 boom-bust line, ending a brief contraction. However, the details reveal underlying fragility: new orders contracted for a fourth consecutive month, and backlogs continued to be run down rather than rebuilt. The sharpest signal for markets was the collapse in business confidence to its lowest level since early 2024, which points to firms pulling back on hiring and investment plans unless order books turn around. On the inflation front, input and output price inflation softened across all five sectors, which will be read as modestly disinflationary at the margin. Live rates and charts on NowPrice show how the Australian dollar and bond yields are reacting to the data, with the market pricing in a higher probability of a rate hold at the RBA's next meeting.

For interest rate traders, the key takeaway is that the RBA is unlikely to shift its cautious stance based on this report. The weakness in new orders and confidence suggests that any recovery in activity may be short-lived, while softer price pressures give the central bank room to wait. The next focus will be on the July labor market report and the quarterly CPI release, which will provide a clearer picture of whether the economy is cooling enough to warrant a rate cut later this year. The RBA has stressed that it needs to see sustained progress on inflation before easing policy, and today's data does not provide that assurance.