Australian consumer and business surveys weakened in recent releases. Westpac Consumer Sentiment fell for a third month in February, down 2.6% month on month after the Reserve Bank of Australia (RBA) rate rise.
In the Westpac survey, 80% of respondents expected higher rates. One-third expected an increase of +100bps, while sentiment sat near the lower end of the past year’s range.
Business Survey Signals Mixed Momentum
In the NAB Business Survey for January, business confidence rose to +3 from +2 in December. Business conditions eased to +7 from +9, with trading and profitability softer and the employment index unchanged.
Forward orders improved to +2 from -1. Capacity utilisation slipped to 82.9%, which is 1.5 points above the long-term average.
Price pressures eased across several measures. Labour costs rose 1.3% versus 1.7% previously, purchase costs rose 1.1% versus 1.3%, and final products prices rose 0.5% versus 0.8%.
The business survey was conducted before the latest RBA rate rise. The original article noted it was produced using an AI tool and reviewed by an editor.
Market Implications For Rates And Risk Assets
We are seeing Australian consumer and business surveys lose steam, with the Westpac consumer sentiment index falling for a third consecutive month following the last Reserve Bank of Australia (RBA) rate hike. This indicates that households are feeling the direct impact of tighter monetary policy. The widespread expectation of even higher rates among consumers suggests this cautious mood will likely persist.
Despite this consumer weakness, we do not expect the RBA to alter its hawkish stance in the immediate future, particularly as the most recent quarterly inflation data for Q4 2025 remained above their target band at 4.1%. This resolve from the central bank suggests that interest rate futures markets may be under-pricing the potential for another hike by mid-year. Traders should therefore consider positions that would benefit from short-term rates remaining firm or pushing slightly higher.
The business survey reveals a mixed picture; while conditions and price pressures are easing, capacity utilisation remains well above its long-term average at 82.9%. We saw a similar dynamic in early 2025, where underlying strength in the economy kept the RBA from pivoting despite softening sentiment. This suggests that while the economy is slowing, it is not collapsing, which may create volatility and opportunities for traders using options to play a range-bound ASX 200 index rather than a clear directional move.
For the Australian dollar, this internal conflict between a hawkish central bank and a slowing economy creates headwinds. Given that other central banks like the US Federal Reserve are also maintaining a firm policy stance, the AUD may struggle to find strength based on interest rate differentials alone. We should consider using currency derivatives to hedge against potential AUD weakness, especially against the US dollar, if global growth indicators continue to soften.
