Australian Dollar, NAB Business Confidence Survey Talking Points:
- NAB’s business confidence survey was quite gloomy for August
- The fall of former PM Malcolm Turnbull probably didn’t help, but confidence was notably weak
- Still, the current conditions assessment was much better
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The Australian Dollar managed to rise Tuesday, paring earlier losses as investors apparently chose to focus on the positives from an objectively mixed business survey.
Overall business confidence declined in August, according to the National Australia Bank’s roundup. Its index fell to 4, from a prior reading of 7. This was also the lowest reading since late 2016. However, firms’ assessment of business conditions rose, hitting 15 from a previous, upwardly revised 13.
A knock to confidence is hardly surprising given that a Prime Minister left office in August. Malcolm Turnbull was ousted over a lack of confidence in his leadership, adding to the considerable churn in Australia’s top political post. There have now been seven Prime Ministers in just over eleven years.
Still, NAB said that business was still performing strongly and that strong employment growth was likely in the months ahead. This optimism perhaps explains AUD/USD’s response.
NAB’s employment thesis will be put to the test soon enough, with official data coming up on Thursday and, indeed, expected to be quite strong.
Still, AUD/USD remains trapped in a long downtrend, which has endured as interest-rate differentials have swung solidly behind the US Dollar, where they remain. No change to record-low Australian rates is priced in by futures markets for the remainder of this year and all of 2019.
While inflation remains stickily low there seems little chance of a change to this view and, with official Australian consumer price index data released only quarterly, rather than monthly as it often is elsewhere.
There may be some chance that a strong employment number this week could arrest the relentless AUD/USD slide somewhat, but that is far from certain.
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--- Written by David Cottle, DailyFX Research
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