The NAB survey points to an economy holding up better than feared but still operating under the shadow of elevated uncertainty, a combination that gives the RBA little reason to shift from its expected hold today. The pickup in conditions to +4, still below the long run trend of +7, alongside confidence stuck well below pre-conflict levels, supports the case for a cautious central bank message rather than a clearly hawkish or dovish one. The rise in cost pressures, particularly through transport and utilities as fuel prices swing with the renewed Gulf tensions, adds a layer of relevance for how the RBA frames near term inflation risk in today’s accompanying communication. The jump in capacity utilisation and steady sales suggest underlying demand is not collapsing, which should reduce any temptation for the Bank to soften its tone on future tightening.
Still ahead, RBA:
- RBA preview: Analysts see cash rate on hold at 4.35% Tuesday
- RBA preview – Westpac says soft Q2 CPI gives RBA room to hold at 4.35%
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Preview: RBA meet Tuesday. CBA expects RBA to hold rates through the rest of 2026
- MUFG opens long AUDJPY at 111.20, targets 114.50 as yen intervention debate builds
- Preview: RBA to stay in pause and observe mode, TD Securities says ahead of today’s decision
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Australian businesses are managing better than feared, but confidence remains too fragile to call the uncertainty over.
Summary:
- NAB’s business conditions index rose to +4 in July from +3 in June, though it remains below the long run trend of +7.
- Business confidence held at -6 in July, unchanged from June and still well below levels seen in February before the US-Israeli war on Iran began.
- NAB said elevated uncertainty continues to weigh on confidence despite outcomes improving relative to the peak impact of the Middle East crisis.
- Cost pressures alongside a softer forward demand outlook are seen continuing to squeeze margins, with the transport and utilities industry a key driver of higher final prices and purchase costs amid swings in fuel prices.
- Employment and profitability measures picked up in July while sales were steady, and capacity utilisation rose sharply to 83.0%, led by the finance, business and property and wholesale industries.
- The RBA meets today and is widely expected to hold rates at 4.35% after three hikes this year, with policymakers previously warning further increases are possible if inflation does not cool as hoped.
Australian business conditions improved marginally in July while confidence remained fragile, a survey published Tuesday showed, with firms pointing to ongoing cost pressures even as renewed tensions in the Gulf pushed oil prices higher again.
The National Australia Bank survey showed its business conditions index rose one point to +4 in July, though the reading remains below the long run trend of +7. Confidence was unchanged at -6, still well below the level recorded in February before the outbreak of the US-Israeli war on Iran.
NAB said the survey results show elevated uncertainty has continued to weigh on business confidence, even though outcomes have improved relative to the peak impact of the Middle East crisis. The bank added that cost pressures, combined with a softer forward demand outlook, suggest margins will remain under continued pressure. Fuel price swings were flagged as a particular driver of cost pressure in the transport and utilities industry, which NAB noted was a key contributor to the rise in both final prices and purchase costs recorded in the survey.
Beneath the fragile headline confidence figure, some underlying indicators showed more encouraging signs. Measures of employment and profitability both picked up in July, while sales activity held steady. Capacity utilisation rose sharply to 83.0%, a jump NAB attributed largely to the finance, business and property and wholesale industries, pointing to firmer underlying activity in parts of the economy even as broader sentiment remains subdued.
This article was written by Eamonn Sheridan at investinglive.com.
