Talking Points:
- Australian business confidence took a hit in November
- Firms assessment of current conditions was especially sour
- House prices missed forecasts too
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The Australian Dollar fell Tuesday on news of a business confidence retreat.
November’s indicator from big local lender National Australia Bank showed that firms’ assessment of current business conditions had slumped to 12, from October’s 21. The confidence index slipped to 6, from a previous 8.
This is an alarming piece of data because business confidence has been a relative bright spot for the Australian economy this year. NAB did point out that business condition assessments remain above their long term averages and are at “solid levels across the economy.” The bank did note that retail confidence was lagging.
The official, third-quarter house price index released at the same time was a mixed bag. On the quarter prices fell by 0.2%, much weaker than the 0.5% rise expected. On the year they chalked up an 8.3% gain, but even that was below the .8% expected and the previous quarter’s 10.2% rise. A modest pullback for prices may not trouble the Reserve Bank of Australia too much given that it is known to be concerned about housing-market froth.
However, given such a patchy run of numbers a fall for the Australian Dollar shouldn’t be a surprise.
On its daily chart the Australian Dollar remains locked in the downtrend which has persisted since AUD/USD made its highs for the year back in September. On at least one level this makes eminent sense. The US Federal Reserve is hotly tipped to raise interest rates this week and to continue doing so with reasonable regularity through 2018.
The RBA meanwhile has held its Official Cash Rate at a 1.50% record low since July 2016. Aussie rate-futures markets don’t price in any increase until well into 2019.
Beyond interest-rate differentials another factor weighing on the Australian Dollar is the RBA’s repeated insistence that a higher currency makes life more difficult when it comes to fighting inflation and promoting growth.
However, with that crucial Fed meeting so very close, the USD side of AUD/USD is likely to dominate, and to continue to do so as this year faded out.
--- Written by David Cottle, DailyFX Research
Contact and follow David on Twitter: @DavidCottleFX
