Turbulent Times for Australian Consumer Confidence and Business Conditions

• Australia’s consumer confidence falls sharply
• Australia’s business conditions improve
• Markets eye US inflation report on Wednesday

The Australian dollar has edged lower on Tuesday after starting the week with massive gains. In the North American session, AUD/USD is trading at 0.6412, down 0.28%.

Australia’s consumer confidence slides

Australian consumers are in a sour mood, as they feel the squeeze of high interest rates and stubborn inflation, which has led to heavily-debted households. The Westpac Consumer Sentiment Index fell by 1.5% in September to 79.7, following a decline of 0.4% in August. This missed the consensus estimate of 0.6%. Consumer sentiment remains at its lowest levels since 2020, during the Covid pandemic.

The corporate sector is showing more confidence than consumers, as businesses have shown stronger resilience to higher rates and increasing inflationary pressures than consumers. NAB Business Conditions climbed to 13 in August, up from 11, while business confidence remained at 2 points, indicative of slight optimism.

The Australian dollar roared out of the gates on Monday, gaining 0.85%. The driver of the uptick was China’s August inflation release. CPI rose 0.1% y/y, after a surprise decline of 0.3% in July. China’s slowdown has raised alarm bells about the impact it will have on global growth, and the Asian giant is Australia’s number one trading partner. The Aussie is sensitive to economic developments in China, as we saw on Monday, and China’s Industrial Production, which will be released on Friday, could be a market-mover for the Aussie.

Next week features a host of central bank meetings, and one of the most closely watched will be the Federal Reserve meeting on September 20th. Jerome Powell has broadcast loud and clear that the battle against inflation isn’t over and rate hikes remain on the table, but are the markets paying attention? Investors have priced in a pause in September at 93% and are talking about rate hikes in 2024.

 

The US releases the August inflation report on Wednesday, which is unlikely to change expectations about a September hold, although the inflation release could have an impact on the Fed’s rate path for the final quarter of the year.

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AUD/USD Technical

• AUD/USD is putting strong pressure on support at 0.6405. Below, there is support at 0.6330
• There is resistance at 0.6453 and 0.6528