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Australia Today - Westpac consumer confidence is more important than usual for the Aussie dollar

Market Analysis /
Greg McKenna / 12 Sep 2018

Welcome to my Australia Today column where I'll have a look at some economics, the Aussie dollar, and the outlook for the ASX200 and SPI. 

As every Feedback is welcome


The Aussie, which had been knocked from its highs as Euro pulled back is a little higher and just in the black now at 0.7116 for a 0.05% gain.

But the reality is the Aussie can’t get off the mat.

It underperformed the Euro and Pound on their solid rallies in early Europe yesterday and while it has made some ground back in the past 12 hours or so it is still relatively week relative to the EUR and even copper moves. MAybe there's a EURAUD trade there somewhere?

Click on me, I'll expand
Click on me, I'll expand

A big part of that Aussie dollar underperformance is the way the NAB business survey was characterised yesterday in the headlines and that means the Aussie could be at risk again today if Consumer Sentiment prints as weakly as it might.

It is clear sentiment is against the Aussie and that the downside will open up eventually. That said though, I keep asking myself if we might not be already a near-term peak in pessimism for the moment? It’s a question of timeframes – as it always is. But for the Aussie to rally it needs to hit and clear 0.7131. Last night’s high around 0.7127/28 was close, but no cigar.

Click on me, I'll expand
Click on me, I'll expand


As I guessed in my Australia Today piece yesterday it was turnaround Tuesday for the ASX with the first rally in a week seeing the 200 index up 38 points, 0.6%, to 6,179. SPI traders are a little more circumspect though and have knocked 14 points off overnight. Certainly, the miners were mixed globally last night but energy might do okay today.

6190 remains the target as long as this uptrend holds in the SPI.

Click on me, I'll expand
Click on me, I'll expand


The headlines read “confidence falls to 2-year lows”, which is true. But the negative nellies failed to mention that conditions, trading, profitability, and employment all looked really solid. Remember this is me calling folks negative nellies. So it’s not as though I don’t harbour some concerns about the outlook for the Australian economy. But what the NAB’s business survey showed yesterday was a story of resilience in the face of uncertainty on the domestic political front and globally.

Source: NAB
Source: NAB

That’s good news that both business conditions and the key sub-indexes which underpin it have held up.

And NAB chief economist Alan Oster had a great summary of what it means. “Overall, August saw an improvement across the business sector. Business conditions regained some of the ground lost in recent months and have been well above average for some time. In addition, the forward orders index saw a rebound as did capital expenditure. Capacity utilisation remains high and the profitability index remains well above average. This suggests investment in the business sector should continue to grow. Further, the employment index continues to show a pace of employment growth greater than that of the population which should see the unemployment rate decline further. The dynamic around further declines in the unemployment rate and faster wage growth remain key to the outlook for monetary policy,” Oster said.

Westpac consumer sentiment today might be different however given the mess in Canberra, falling house prices, and out of cycle rate hikes. We’ll see this morning at 10.30am AEST.


Looking ahead the Westpac Consumer Sentiment data today will be important. Where yesterday’s NAB business survey showed a dip in confidence but resilient underpinnings consumer confidence could print poorly given all the headwinds. We’ll see. Otherwise it’s a fairly quiet 24 hours of data. The EIA inventory data tonight is going to be important – especially after the massive draw (8.6 million barrels) just announced for API. We also have PPI in the US, mortgage applications and speeches from the Fed’s Bullard and Brainard. Before that the Euro Area has industrial production.

Have a great day's trading.

Greg McKenna

Chief Market Strategist


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