Interest Rate Cuts Are Coming to Australia: Here Are the Top 3 ASX Stocks to Watch Now

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🇺🇸 Trump’s Big Spending Bill: Economic Lifeline or Debt Disaster?

In a move that’s sending tremors through financial markets, Donald Trump is backing a massive new spending package dubbed the “Big Beautiful Bill”—a plan to inject $3.3 trillion into the US economy while simultaneously lifting the debt ceiling by $5 trillion. This would take US government debt beyond $40 trillion for the first time in history.

Despite the eye-watering figures, markets are rallying. Why? The proposed stimulus includes tax cuts and business incentives, which investors believe will spark economic demand and fuel corporate earnings.

But not everyone is on board. Elon Musk called the bill "Debt Slavery" and has pledged to help oust Republicans who vote in favour of it. Still, markets appear to be betting that short-term growth will outweigh long-term debt concerns—at least for now.

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🔥 Trump vs Powell: The Rate War Escalates

Trump’s war of words with Fed Chair Jerome Powell has reached new heights. After the Federal Reserve held rates steady, Trump blasted Powell as being “too late” in responding to falling inflation and weakening job data.

Behind the scenes, speculation is mounting that the White House could replace Powell before his official term ends in May 2026. A new, more dovish Fed Chair could accelerate interest rate cuts, helping to reduce borrowing costs and pump liquidity into the system.

If markets get what they’re pricing in—fiscal stimulus + lower interest rates—it could be the perfect storm for equities… but it also increases the risk of future inflationary flare-ups.

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🇦🇺 Rate Cuts Loom in Australia: Inflation Falls to 2.1%

Back on home soil, the Reserve Bank of Australia is under pressure to follow the US lead. The latest Consumer Price Index shows inflation rising just 2.1% year-on-year to May, with the trimmed mean at 2.4%—comfortably within the RBA’s 2–3% target range.

As a result, the futures market is pricing in a 97% chance of a 25bps rate cut on July 8, dropping the official cash rate to 3.60%. Forward expectations suggest we could see a base rate of just 2.85% by April 2026.

This shift in policy outlook is bullish for equities, property, and other interest rate-sensitive assets. Investors looking to get ahead of the curve are already positioning in high-dividend stocks and cash flow-generating businesses.

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⚠️ But Is This the Calm Before the Storm?

While investor sentiment is buoyant, several macro risks remain underpriced:

• Tech valuations and bank stocks are at all-time highs—raising concerns of overheating.
• Retail investors flooded back into the market after April’s selloff, often a contrarian signal.
• The 90-day US-China tariff ceasefire ends July 9, bringing geopolitical uncertainty back into focus.
• Inflation may be falling now, but lagged effects from stimulus could cause a second wave.

With so much riding on political and central bank decisions, it might be time to take profits where possible—especially in stretched sectors—and rotate into more defensive, cash-flow-rich positions.

📈 Top 3 ASX Stock Picks to Watch This Week

Here are three ASX-listed stocks our analysts are watching right now, based on current macro trends and relative valuations:

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✅ Buy: Dyno Nobel Ltd (ASX: DNL)

Sector: Materials / Mining Services

Dyno Nobel—formerly part of Incitec Pivot—manufactures commercial explosives used in mining. As ore grades decline globally, mining companies must dig more waste material to extract usable minerals. This increases the strip ratio, driving up demand for explosives.

• PE Ratio: 13x
• Forecast EPS Growth: 8%
• Cash Flow Multiple: 5.8x

DNL offers exposure to the mining cycle without relying on commodity price fluctuations. Its valuation remains modest, making it a smart play in a volatile market.

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✅ Buy: Aurizon Holdings Ltd (ASX: AZJ)

Sector: Transportation / Infrastructure

Aurizon operates one of Australia’s largest rail freight networks, transporting coal and iron ore from mine to port. Despite global uncertainty, Chinese demand for bulk commodities remains strong, ensuring steady revenue.

• Forecast Yield: 6.8%
• Franking: 60%

With rate cuts likely to support infrastructure stocks and dividend payers, AZJ is well-positioned for both income and stability.

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❌ Sell: Catapult Group International Ltd (ASX: CAT)

Sector: Technology / Sports Analytics

Catapult’s sports science business has been a huge success, with its stock rising 252% since our initial recommendation 3.5 years ago. But now, the price reflects perfection:

• Forecast EV/CF: Over 36x

Although we like the company long-term, current valuations are too high. We suggest locking in gains and revisiting if the price cools off.

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📊 Final Thoughts: Play the Rally, But Don’t Ignore the Risks

With interest rates falling globally, liquidity is returning—and that’s historically great news for equities. But don’t be lulled into complacency.

If you’ve enjoyed solid returns since the April selloff, consider rebalancing your portfolio. Take some gains off the table and rotate into cash-flow rich, lower-risk sectors.

And if you’re looking for a head start, our free research report covers the next 10 ASX stocks we’re watching closely.

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