The improved but still below-trend reading gives the Reserve Bank some room to hold at its September meeting without abandoning its tightening bias, consistent with Westpac's own call for a very hawkish hold ahead of a further rate rise later this year. For AUD, the report's signal cuts both ways: firmer momentum and a resilient June quarter support the case for additional hikes, typically supportive for the currency on rate differential grounds, while the report's own caution that labour markets, financial markets, commodity prices and consumer sentiment remain soft leaves room for disappointment if the improvement doesn't hold. Rising fuel prices and a housing market downturn are flagged as fresh headwinds to sentiment that could weigh on domestic demand and, by extension, the RBA's confidence to keep tightening. Markets will likely treat the data as a modest positive for the RBA's hawkish stance without materially shifting near term rate expectations, given the central bank is not expected to move again until after the October 28 inflation update.- Westpac's Leading Index shows Australian growth momentum still soft but improving, enough to keep the RBA hawkish without forcing a September hike, with another rate rise expected once October's inflation data confirms the picture.Summary:Westpac-Melbourne Institute Leading Index growth rate rose to -0.09% in August from -0.17% in July, still below the long-run trendMomentum has improved since mid-year but remains softer than the +0.26% average pace recorded through most of 2025The current below-trend run is described as milder than the 2022-2024 cost-of-living period, when the index averaged -0.46% with lows near -1%A ramp-up in data centre investment and firmer dwelling approvals have helped offset drags from labour markets, financial markets, commodity prices and consumer sentimentWestpac has upgraded its year-end annual growth forecast to 1.5%, from a previous 1% forecastWestpac expects the RBA to hold rates at its September 28-29 meeting but hike again after the October 28 quarterly inflation update, calling the September decision a "very hawkish hold"Westpac's Leading Index of Economic Activity showed a further improvement in August, with the six-month annualised growth rate rising to -0.09% from -0.17% in July, according to the bank's economics team. While the reading remains below the long-run trend, it points to momentum stabilising rather than deteriorating further, a signal Westpac says is broadly consistent with the resilience shown in the Australian economy through the June quarter national accounts.The improvement comes against a backdrop in which the Reserve Bank of Australia has already raised interest rates three times this year in its effort to bring inflation back toward the 2 to 3 percent target, with further tightening still expected. Westpac's own economists believe the central bank will hike again before year end, though they think the RBA will hold off at its upcoming September 28-29 meeting until a fuller quarterly inflation update is released on October 28. Westpac describes the likely September outcome as a "very hawkish hold."The Leading Index's growth rate is now roughly back to where it stood six months ago, having eased only slightly from the -0.07% pace recorded in February. That said, the composition of the improvement has shifted meaningfully. Over the past six months, bigger drags have come from labour markets, financial markets, commodity prices and consumer sentiment, which combined have taken 0.42 percentage points off the index's growth rate since February. That weakness has been offset by a more positive signal from dwelling approvals, adding 0.32 percentage points, and a firming in US industrial production, contributing a further 0.08 percentage points.Westpac cautions that this mix raises questions about how durable the recent improvement will prove. Rising fuel prices and concerns about further rate increases appear to be weighing on consumer sentiment once again, while a downturn in established housing markets is also having an effect. Westpac warns these pressures could intensify in the near term and potentially spread to other components of the index.Even so, Westpac has upgraded its year-end annual growth forecast to 1.5%, from a previous estimate of 1%, judging that the economy's relatively resilient performance through the June quarter is likely to extend through the second half of 2026 and into early 2027, notwithstanding the drag from higher interest rates and a global energy shock. This article was written by Eamonn Sheridan at investinglive.com.