Australian business sentiment stalls, consumer sentiment falls

Business confidence came to a standstill according to a monthly NAB (National Australian Bank) survey. Falling from 5 to 0, it now sits at its lowest level since January and business conditions have also turned lower from their highs.

Business reported another strong month of sales and profitability, although a dip in new orders and rising costs weighed on sentiment. Whilst consumer-driven demand remains high, NAB’s chief economist noted that forms appear wary that the current pace of consumption will continue.

Separately, PMI survey’s for Australia continue to trend lower with the S&P global composite below 50 (contraction), with services PMI dragging the composite lower. Furthermore, manufacturing, services and construction PMI are all below 50 according to another PMI survey by AIG. Put together it makes me wonder if growth for 2023 will have to be revised lower, as consumer spending appears to be propping up the show.

Going back to NAB’s note on businesses becoming wary of future consumption, it’s worth noting that a consumer sentiment fell for a sixth consecutive week and sits at its lowest level since the pandemic, according to a weekly report by ANZ-Roy Morgan. 2-year inflation expectations rose to a record high of 6.8%, and the ‘time to buy a major household item’ drop by 3.1% and sits near its lowest level since the pandemic. This suggests that businesses are right to be wary that consumer demand will prevail, and this likely points to weaker growth in 2023.

Still, the Australian dollar was been able to claw back some losses against the greenback on Friday following a mixed NFP report, a hopes that the Fed may slow their pace of tightening intensified.

AUD/USD daily chart:

AUD/USD remains within a bearish channel on the daily chart, although has entered a corrective phase after finding support above the 2020 monthly close low. A large bullish engulfing candle formed on Friday  and it looks like the market wants to test the 0.6535 resistance area.

However, given the US dollar index is likely to find support around 110 – which includes the October 2002 high, bullish trendline and October low – we may find that the immediate upside potential for AUD/USD is limited. In which case we would prefer to fade into the resistance level for an initial pullback.

As we head into (and beyond) US inflation data on Wednesday, we’ll have a better idea of whether the dollar can rally from 100 support (AUD/USD bearish) or break lower to send AUD/USD above the 0.6535 resistance area.

EUR/AUD daily chart:

A pair to consider should we see another bout of Aussie dollar weakness is EUR/AUD. Large speculators are increasingly net-long EUR/USD futures and remain net-short AUD/USD futures, which is effectively the view of bullish EUR/AUD.

A strong bullish trend developed on the daily chart since the August low and prices have since been retracing within a potential bull flag pattern. Friday’s spike lower found support at the July (close) high and prices are now holding above the monthly pivot point and July high. From here’s we’re waiting to see if momentum turns higher in line with its trend, to bring the resistance zones around the monthly R1 and R2 into focus.

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