Australia's household spending edged up modestly as the labor market cooled slowly, business confidence strengthened, and inflation remained close to target, with the Reserve Bank of Australia likely to lower rates further, according to National Australia Bank's (ASX:NAB) report on July 18.

Household consumption showed modest early recovery despite slower-than-expected spending growth, while the labor market remained broadly balanced but is gradually cooling, marked by a slight rise in unemployment to 4.3% in June and slower employment growth signaling easing momentum, the report said.

A sharp rebound in business confidence and conditions in June signaled a potential turnaround after a weak start despite ongoing margin pressures and uneven sectors weighing on profits and sentiments, while the Australian dollar edged up and is expected to finish the year near $0.70, strengthening gradually through 2026.

Australia's housing market is stabilizing, with steady price growth in major cities and a modest recovery in approvals and commencements, but construction remains constrained and below pre-pandemic levels, the report added.

Inflation in Australia eased into the RBA's 2% to 3% target band, but ongoing shelter and goods price pressures keep the bank cautious, prompting a July pause in rate hikes, with easing expected later this year and the cash rate forecast to fall to 3.1% by early 2026 amid cautious growth optimism and a balanced labor market.