Australian business sentiment slows consumer sentiment

According to a monthly NAB (National Australian Bank) survey, business confidence has stalled. It is now at its lowest level since January, down from 5 to 0, and business conditions have also eased from their highs.

20221108nab business confidence

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

Separately, Australia PMI surveys continue to trend lower with the S&P Global Composite below 50 (contraction) with the services PMI dragging the composite lower. Additionally, manufacturing, services and construction PMIs are all below 50 according to another AIG PMI survey. Taken together, I wonder if growth needs a downward revision for 2023 as consumer spending seems to be propping up the show.

20221108spPMIs

Coming back to NAB’s note that companies are becoming cautious about future consumption, it’s worth noting that consumer sentiment has fallen for the sixth straight week and is at its lowest 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 an essential household item” falls 3.1%, near its lowest level since the pandemic. This suggests companies are rightly cautious that consumer demand will prevail and likely points to weaker growth in 2023.

Still, the Australian dollar pared some losses against the greenback on Friday after a mixed NFP report on hopes the Fed may slow its pace of tightening.

AUD/USD daily chart:

20221108audusdFX

The AUD/USD remains within a bearish trading range on the daily chart, although it has entered a corrective phase after finding support above the 2020 monthly closing low. A major bullish engulfing candle formed on Friday and it looks like the market may want to test the 0.6535 resistance area.

However, with the US Dollar Index likely to find support around 110 – which includes the October 2002 high, the bullish trendline and the October low – we could conclude that the immediate upside for AUDUSD is limited. In this case, we would prefer to dodge to the resistance level for an initial pullback.

Turning to US inflation data on Wednesday (and beyond), we will have a better idea of ​​whether the dollar can rally off the 100 support (bearish AUD/USD) or break down to support the AUD/ push USD above 0.6535 resistance area.

EUR/AUD daily chart:

20221108eruaudFX

One pair to keep an eye on if we see another bout of weakness in the Australian dollar is EUR/AUD. Large speculators are increasingly net long EUR/USD futures and remain net short AUD/USD futures, effectively the view of a bullish EUR/AUD.

A strong bullish trend has developed on the daily chart since the August low and prices have since retreated within a potential bullish flag pattern. Friday’s bottom spike found support at the July (closing) high and prices are now holding above the monthly pivot point and the July high. From here we await momentum picking up in line with its trend to focus on resistance zones around monthly R1 and R2.

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