MCP Market Watch August 2026

Economy & Property Market Watch - August 2026

Cash Rate Decision

Thanks for reading our fifth Economy & Property Market Watch for 2026. 

The RBA has held rates at 4.35% at its August meeting today, a second consecutive pause after the three increases in the first half of the year. The hold was expected and markets priced in the hold.

Headline CPI eased and trimmed mean held steady, below both market expectations and the RBA's own forecast. That was the first clean read in this cycle: the headline falling and the core holding underneath.

What has not changed is the Board's bias. Governor Bullock used her July speech to remind the market that the tightening bias remains, and the Board has not retired the phrase “if required”. This is a hold with the safety catch still off, not the end of the cycle.

The Scorecard for July & August

"The Scorecard" is updated to reflect the available data as of August 2026. The 'Previous (June)' column reflects the starting position at the last edition.

Two readings are moving in the opposite direction to the June edition. The labour market did not soften as expected, and the bond market did not sustain its rally. Equity markets are strong. Meanwhile, the housing correction, which was a Sydney-and-Melbourne story in June, has gone national. Clearly there is a gap between how people are feeling and the numbers.

Interest Rates, Inflation & RBA Matters

Headline CPI eased to 3.8% in the year to June, down from 4.0% in May. The quarterly CPI rose 0.6%, and the monthly indicator fell 0.1% for a second consecutive month. The relief again came chiefly from fuel, with transport costs rising just 0.1% over the year against 3.3% in May.

The underlying picture is more stubborn. Trimmed mean inflation held at 3.6%, with the quarterly core at 0.8%. Housing is now the largest single contributor to annual inflation at 6.8%, driven substantially by electricity, up 22.4% over the year as Government rebates expired. Services inflation picked up to 4.0% from 3.7%. New dwelling prices rose 5.8%.

That mix matters for how quickly this resolves. The components that are falling are the ones the RBA already excludes, while the components that are rising are domestic and slow-moving.

The labour market is still strong after employment rose 76,300 to a record 14.82 million in June, well above the 15,000 expected, with the participation rate lifting to 67.0%. Unemployment held at 4.4%. Household spending rose 0.8% in June against forecasts of 0.2%, with annual growth accelerating to 6.0%.

Looking to September

The RBA’s next meeting is on 29 September, with two questions to watch:

1.    Whether the end of the temporary fuel excise discount on 2 August pushes headline inflation back up, and how much of that the Board is prepared to look through.
2.    Whether the strength in employment and household spending is enough to keep capacity pressures alive.

Markets have priced out the near-term hike but have not priced in a cut. Forward pricing has moved to roughly a 60% probability of a move in November if the September quarter CPI comes in hot. Consensus does not see easing before 2027. For borrowers, the practical read is a long hold, not a turning point.

SME Business Conditions

Business confidence has continued its recovery from the March lows. NAB's June Monthly Survey had confidence up nine points to -5, with conditions unchanged at +3 for a third consecutive month. NAB's read is that the fuel cost increase and the disruption from the Middle East conflict have had a smaller impact on the Australian economy than feared.

Confidence recovering is not the same as conditions improving. Conditions have now sat flat at around +3 for a quarter, and the June quarterly survey put conditions at +2 with all three sub-components falling and forward-looking indicators soft across the board. Capex plans and forward orders both weakened.

The constraints are familiar. Labour costs remain the top issue affecting confidence, followed by margin pressure. Consumer demand is uneven, and the July NAB survey lands today alongside this decision.

Sector and state divergence persists. Finance, business services and property continue to outperform retail, accommodation and food. Queensland and Western Australia lead while Victoria continues to lag. The end of the fuel excise discount on 2 August removes a support that transport-exposed businesses had been relying on.

Commercial Property Trends

The funding-cost tailwind we flagged in June has not arrived. The picture is one of stabilisation rather than recovery.

Industrial and prime logistics continue to show income resilience, and well-located prime assets with quality tenants remain firmly sought. Secondary offices with structural vacancies face ongoing repricing. In retail, covenant strength remains the key differentiator.

For borrowers, the practical implication is that debt serviceability, not valuation growth, is doing the work in most deals. Deals underwritten on a 2027 rate cut assumption should be stress-tested at current settings.

For more insights read our latest blog on Investing in Commercial Property.

Residential Property Outlook

National dwelling values fell 0.7% in July on Cotality's index, the largest single-month decline since December 2022. That surpassed June's 0.4% fall.

The significant development is breadth. Five of eight capitals fell in July. Brisbane and Adelaide recorded their second consecutive monthly declines on revised data, joining Sydney, Melbourne and Canberra. The combined regional index fell 0.2%, its first decline since January 2023, with regional NSW, Victoria and Queensland all negative.

Regional SA and WA were the strongest markets in the country. Perth's +0.1% July uptick came alongside a downward revision to June, marking a negative quarter overall. Brisbane and Perth annual results show growth that has already happened. Their monthly and quarterly columns tell a different story.

The sharpest signal is not geography but borrowing capacity. Upper-quartile values fell 3.2% nationally over the three months to July while lower-quartile values rose 0.3%. Borrowing capacity, rather than sentiment alone, seems to be setting prices. Larger loans lose more purchasing power at the higher cash rate, and first home buyer schemes are concentrated below the median.

Sydney and Melbourne are now in outright annual decline. Combined capital auction clearances have been below 50% since late May, though they recovered to 53.6% in the week ending 2 August, with Melbourne at 59.6%. New listings are slowing as vendors wait, but total capital city listings sit 5.7% above the five-year average.

Income continues to improve with Gross rental yields recovering to 3.50% across the combined capitals from December's 3.34% low, against a national vacancy rate of 1.3%.

Capital City Housing Performance in July 2026

Source: Cotality Home Value Index, July 2026.

Interest Rates & Bond Markets

The Australian 10-year yield sits around 4.98%, having eased a little from a nine-week high reached on 24 July but still above the 4.78% we reported in June. The rally that looked like it was building has not held.

The move reflects two forces pulling against each other. Softer inflation has taken the near-term hike out of pricing. Against that, global yields have stayed elevated, and the market has not conceded that the RBA is done. Australia sits at the tight end of the developed world on cash, with the flattest curve in the group. The market is not paying us to wait.

The Fed held at 3.75% on 29 July for a fifth consecutive meeting, though not on a unanimous vote. Chair Kevin Warsh's second meeting produced less forward guidance than markets have been used to. In Japan, the 10-year has pushed to around 2.80% as expectations build for a BoJ move in September, a significant result. The Bank of England left rates unchanged, with Governor Bailey downplaying the need for further tightening.

Australian Shares & Markets

Australian equities have run to records. The All Ordinaries closed at an all-time high of 9,452, with combined market value passing $3.2 trillion. The index is up around 4% over twelve months.

The rally has been led by resources. Gold traded at its highest level in seven weeks before easing to around US$4,256 an ounce, and copper has hovered near record highs. A surprise June trade surplus and a rebound in exports have supported the local market. Financials have been mixed, with a long hold on rates supporting margins but the housing correction weighing on the credit-quality outlook.

Equity Markets Worldwide & Global Central Banks

Global markets have pushed to new highs on a combination of strong US corporate earnings and the AI investment cycle. The Dow set consecutive record closes in early August, crossing 54,000. European markets have reached fresh highs, helped by lower energy costs and resilient earnings.

Japan is the exception as the Nikkei fell back to around 65,600, roughly 10% below its 52-week high near 72,800, as technology stocks came under pressure on concerns about the AI trade. Household spending fell 3.3% in June against expectations of a 1% rise. 

Volatility remains low and very little risk is priced in.

AUD Currency Watch

The Australian dollar is holding around US$0.70, having traded a volatile but range-bound US$0.69 to US$0.705 through late July and early August. The four-year high near US$0.72 reached in May has not been retested.

Australia's currency is caught between offsetting forces. A softer US dollar index and a cooling US labour market are supportive but China's manufacturing back in contraction is not. With the RBA on hold, one of the AUD-supportive factors has been removed.

For import-focused businesses, the dollar continues to offer meaningful relief on USD input costs. For exporters, the picture is stable rather than improving.

Factors to Factor

The ban on residential limited recourse borrowing arrangements in SMSFs commences this month. Funds intending to enter a compliant LRBA are out of time. Read more on the new SMSF rules. 

Beyond that, there is a lot of data between here and the next cash rate decision on 29 September. Two labour force releases, the August and September monthly CPI indicators, the September quarter CPI and the first clean read on how much of the fuel excise increase has flowed through are factors to watch. Any one of these can move the pricing dial.

2026 RBA Monetary Policy Announcements

Thank you for reading Market Watch. The next RBA cash rate announcements will be at 2:30pm on the following Tuesdays in 2026:

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Disclaimer: This Market Watch is prepared for general information purposes only and does not constitute financial advice. Figures are drawn from public sources current to 10 August 2026 and may be revised. MCP Financial Services recommends you seek independent advice before making any financial decisions.