Over the last couple of months, there has been several key developments across both domestic and global markets that will likely shape their course over the remainder of the year. At a global level we have seen the US central bank re-commence its rate cutting cycle while domestically better than expected economic data has seen the prospects for the both the economy and the local share market improve. This environment is expected to provide support for markets over the remainder of the year and into 2026, seeing markets continue their solid progress shown since the falls post the ‘Liberation Day’ tariff announcements.
Starting with the global picture, recent months has seen a focus on the US as it became increasingly likely that the US Federal Reserve would look to start cutting interest rates again. The move followed calls from US Treasury Secretary Scott Bessent for interest rates to be cut by 1.5% over the short to medium term in order to provide support for the economy. These calls were on the back of a series of weak updates on the US employment picture suggesting all was not well across the broader economy. This data also came at a time when the government was increasingly questioning whether US Fed governor, Jay Powell was the right man to be leading the central bank at the current time. Ultimately, the US Fed did cut interest rates but also suggested that there would be more to come over the remainder of the year to help support the economy and prevent it from entering recession.
At a domestic level there has also been a focus on economic data which on the whole signals that the cuts to the cash rate by the Reserve Bank of Australia (the RBA) over the course of 2025 are beginning to have an impact. In the most recent National Accounts data, GDP growth was shown to be rising at a rate faster than most had expected, while, unlike the US, the Australian jobs market was holding up well, seeing the unemployment rate remain broadly steady. Other notable economic updates have been in relation to the inflation outlook which showed it coming off its lows and coming in higher than expected. While the rise keeps inflation at a level the RBA is comfortable with, it will be something they will be watching carefully and could see the current expected Melbourne Cup Day interest rate cut the last for the time being. Previously there had been expectations for another one, or potentially two cuts beyond that.
These changes are significant and have resulted in some slight adjustments to the outlook for financial markets over the remainder of the year. In the US, it is expected that the additional interest rate cuts will provide a further liquidity boost to markets, notably the equity markets, helping them to push to new highs. This is despite the already stretched valuations shown by the broad market. Just how long such a move can be sustained will depend on the flow through to the broader economy and the ability of companies to sustain the profit growth they have shown over the course of the last six months.
The prospect for Australia’s share market has also improved. While the local market will likely benefit from the strong momentum of global markets, the better-than-expected economic picture is likely to bolster future earnings growth too. For much of the year, we have been cautious to the prospects of the Australian share market, but given recent developments have become more constructive as to developments from here as the potential for improved growth will help to better justify the stretched valuations of many Australian companies are displaying at this point in time.
Investment Spotlight – Will the Strength in the Australian Dollar Persist?
The changes seen over recent months have also impacted the Australian dollar, particularly relative to the US dollar. Most recently the Australian dollar has seen a period of relative strength seeing it push through 66 cents, its highest levels for some time. The question now is, can this rise continue, or has the recent move overshot?
However, as we have witnessed in recent months, the economic environment can change quickly, and with it the levels of individual currencies. This could mean the Australian dollar could easily retrace its recent gains. Although this is not our base case, at Evergreen we look to take a longer perspective in regard to how to position portfolios for the impact of changes in currencies. Currently, the currency looks close to its long-term fair value and on this basis would recommend a degree of hedging in portfolios to protect against a sustained rise in the Australian dollar. Should it do so this would negatively impact the value of any foreign currency denominated assets in investors’ portfolios like international equities, property or infrastructure.
Disclaimer: This economic and market update has been prepared by Evergreen Fund Managers Pty Ltd, trading as Evergreen Consultants, AFSL 486 275, ABN 75 602 703 202 and contains general advice only.
It is intended for Advisers use only and is not to be distributed to retail clients without the consent of Evergreen Consultants. Information contained within this update has been prepared as general advice only as it does not take into account any person’s investment objectives, financial situation or particular needs. The update is not intended to represent or be a substitute for specific financial, taxation or investment advice and should not be relied upon as such.
All assumptions and examples are based on current laws (as at September 2025) and the continuance of these laws and Evergreen Consultants’ interpretation of them. Evergreen Consultants does not undertake to notify its recipients of changes in the law or its interpretation. All examples are for illustration purposes only and may not apply to your circumstances.
