The Reserve Bank of Australia (RBA) is widely expected to leave the cash rate at 4.35 per cent when it meets next week, citing easing inflation and an apparently resilient labour market. The decision comes as several peer central banks—including the US Federal Reserve and the European Central Bank—have already begun or signaled rate cuts, placing the RBA among the more cautious monetary authorities in the current cycle. Dale Gillham, Chief Analyst at Wealth Within, argues that holding rates steady would be a mistake—not because inflation is poised to rebound, but because the RBA is underestimating what he considers the single greatest threat to Australia's economy in the coming years: artificial intelligence (AI).

A recent Goldman Sachs report identified 35 major Australian companies where labour costs have grown significantly faster than sales, making them prime candidates for AI-driven cost-cutting. The list spans banks, retailers, healthcare providers, technology firms, and industrial businesses. Many of these companies have already publicly stated that AI will play a larger role in their efforts to improve productivity. The findings echo Goldman Sachs' broader global research, which estimated that generative AI could eventually expose the equivalent of 300 million full-time jobs to automation worldwide, while also projecting meaningful gains to global productivity. However, as Gillham notes, the Australian list represents only the companies whose intentions are publicly known.

Across corporate Australia, Gillham observes that businesses are no longer simply asking whom they should hire next; they are increasingly asking whether they need to hire anyone at all. International bodies including the OECD and the World Economic Forum have similarly flagged AI as a transformative force for labour markets, with the potential to dislocate certain roles while creating new categories of work. The net employment effect remains a subject of active debate among economists. Still, Gillham's concern is about the speed of any transition: could the pursuit of AI-driven efficiency, oriented around shareholder interests, inadvertently push the economy toward recession before any offsetting job creation materialises?

Gillham contends that a company's foremost priority is shareholder satisfaction, and rising profit margins remain one of the most effective ways to deliver it. AI enables businesses to grow revenue while reducing headcount, creating what he describes as a fundamentally different challenge for the labour market.

RBA's Forward-Looking Mandate and Employment Risk

For years, the RBA emphasised that inflation sat above its 2–3 per cent target band and could not be ignored. Now, the Reserve Bank is anticipated to hold rates again, primarily because inflation has moderated and unemployment—currently around 4.2 per cent—remains within what the bank considers a manageable range. That figure is low by historical standards; Australia's pre-pandemic unemployment rate hovered above 5 per cent for much of the prior decade. Gillham counters that the current figures sit at the upper boundary of what is acceptable in the current cycle, and he is concerned about where unemployment could stand in two years' time.

If Australian companies adopt AI as aggressively as many are signalling during this reporting season, Gillham warns that unemployment could rise above 5 per cent more rapidly than traditional economic models predict. By the time official data confirms such a trend, thousands of jobs may have already been lost.

The RBA has long maintained that monetary policy must be forward-looking. Gillham argues that if that principle applies to inflation, it should equally apply to employment. In his assessment, the greatest risk over the next few years is not another inflation shock, but a jobs shock.

Best and Worst Performing Sectors

Information Technology was the strongest-performing sector this week, rising more than 7 per cent, buoyed by further declines in oil prices. Materials and Healthcare also posted robust gains of over 6 per cent each, attracting bargain hunters as both sectors recovered from double-digit pullbacks. These two sectors are widely viewed as potential standouts during the current earnings season.

Energy was the weakest sector, falling more than 2 per cent as lower oil prices reduced demand for oil and gas stocks. Utilities slipped by less than half a per cent, with heavily weighted stocks in the sector continuing to trade cautiously and prices moving sideways over recent weeks. Given the uncertainty surrounding the RBA's interest rate decision, the market appears to be awaiting that outcome before determining whether utilities will regain favour.

Best and Worst Performing Stocks

Genesis Minerals led the ASX Top 100 gainers this week, climbing more than 17 per cent. Vault Minerals followed with a gain exceeding 16 per cent, and Greatland Resources rose over 15 per cent. All three stocks benefited from a strong overnight increase in the gold price, which Gillham suggests has found a major bottom.

Woodside Energy was the weakest performer, followed by Ampol Limited, with both stocks declining more than 3 per cent amid volatility in oil prices. The Lottery Corporation fell over 2 per cent as the sell-off continued, with sellers having broken through the heavily defended $5.70 support level and pushed the stock sharply lower.

All Ordinaries Index Update

The All Ordinaries Index broke to a fresh all-time high after surging 3.4 per cent during the week. After months of trading sideways and repeatedly testing resistance, the market decisively broke through, signalling that buyers have regained control.

The breadth of the rally added to its significance. Technology, Materials, and Healthcare led the advance, while Financials also contributed meaningfully. When multiple sectors move in the same direction, it typically indicates a healthier and more sustainable bull market.

The breakout comes at an opportune moment, with reporting season now underway. Markets are clearly looking forward, particularly to stronger earnings from the Materials sector. Nonetheless, Gillham characterises the current environment as a stock picker's market, where individual company results will vary and careful selection remains essential.

The next key technical level to monitor is 9,800, which now serves as the market's next major resistance. The 9,200 level that repeatedly rejected the market in prior attempts has finally become support.

About the Author

Dale Gillham is Chief Analyst at Wealth Within, an Australian Financial Services License holder (AFSL: 226347). He is the international bestselling author of How to Beat the Managed Funds by 20% and the award-winning book Accelerate Your Wealth—It's Your Money, Your Choice.

The information in this article is general in nature and should not be relied upon as investment advice. Readers are encouraged to conduct their own research and consult a certified financial advisor before making investment decisions.