Latest economic data from around the world show growth continuing to improve in the US and China, but remaining soft in Europe. In Australia, the labour market figures for June showed a 15,900 gain in employment but this was entirely due to an increase in part time jobs while full time jobs actually fell by 3,800. The unemployment rate rose from 5.9% in May to 6.0% in June, which was a worse result than generally expected. The headline CPI rose 0.5% in the June quarter which was in line with expectations. This brought the annual inflation rate to 3.0% compared with 2.9% in the March quarter. Underlying inflation rose 0.7% in the June quarter to 2.8% in year-on-year terms, compared with 2.7% in the year to the March quarter. These annual figures are towards the top end of the Reserve Bank’s 2% to 3% target range.

A run of robust employment numbers in the US, with the inflation rate sitting near the Fed’s 2% target level, has made financial markets nervous about the prospect of higher US interest rates. This has been exacerbated by some public dissension between Fed Governors about when interest rates will start to be adjusted.

Events in the US impacting on interest rate expectations helped push the US dollar higher so that the $A/US$ fell below 0.94 cents. The Reserve Bank left the cash rate unchanged at its Board meeting on 5 August.

Geopolitical events had a significant impact on market sentiment July. The escalating conflict in Gaza plus the MH17 tragedy contributed to increased volatility in the month. Further sanctions were imposed against Russia, leading to increased concerns about weaker growth in Europe.