The June Australia Business Confidence

This week is relatively quiet on the economic calendar for Australia. This means the AUDUSD is likely to move more on external events over the next few days.

Of the more important events coming up, overnight we get NAB Business Confidence. The day after tomorrow, we get the consumer confidence survey.

Most of the data we are getting is still from before the recent G20 meeting in which Trump and Xi met and, once again, agreed to a truce over the trade dispute.

While this is seen as a positive step, a lot of investors are still wary given the last time there was a pause, not much came from it. So, even when the new data comes out, we probably won’t see much of a change in outlook.

What We Are Looking For

There are two data points coming from the NAB tomorrow in the early morning. The one the market focuses more on is the Business Confidence number over the Business Conditions. This covers how businesses expect their markets to develop over the next six months, and is useful as a forward-looking date.

The consensus of expectations for the NAB Business Confidence figure is 2 compared to 7 in the prior month. This keeps it in growth territory, but barely. It’s also a return to the March level, which is well below the average of the last couple of years.

We can expect NAB Business Conditions to improve to 3 from 1 prior, reflecting the bump in projections we saw last time around.

The Election Effect

Last month, the NAB Business Survey came in with a relatively high number following the election. This was a combination of both the relief of getting over that bit of uncertainty and the positivity associated with the new government’s pledge to cut taxes.

The question now is whether that momentum maintains going forward, or whether it was a one time bump and sentiment will settle back into its prior somewhat dour outlook. There are several data points that suggest that May’s result was a one-off.

The Long Arm of the Fed

The first factor is a consideration regarding the Fed’s expected rate cut. During the time of the survey, the market was already pricing in at least a 0.25% rate cut in July. Then we had the better than expected NFP results on Friday which dampened that outlook.

However, with the RBA cutting twice and the Fed not in the same boat, the interest rate differential does not favor capital flows to Australia.

The survey was also done before the RBA made its second cut, though at the time there was a pretty broad consensus that there would be one.

Other Views

Private surveys of business confidence conducted late last week show that businesses seem to have the same views as in May, with a slim majority expecting good conditions for the foreseeable future.

That doesn’t mean that they are willing to invest, however. An increasing number are saying they are looking to hold off investment for now. Tasmania and Victoria being the exceptions to a general antipathy in the business sector, both performing quite well.

Analysts are billing this week’s events as a test to see if the election and RBA are having the desired effect on the markets. Should we get disappointing data, it might be a poor sign for Aussie strength in the long term.