Australian dollar rises despite weak confidence data

Daily Currency Update

The Australian dollar (AUD) continues to strengthen, trading at US$0.6618 against the US dollar during the European session on Wednesday, up 0.40% on the day. Since last Thursday, the Australian dollar has gained 1.5%, reaching its highest level in six weeks. This upward momentum in the currency is notable given recent signs of weakening confidence among both consumers and businesses in Australia. According to the latest data from Westpac, the Consumer Sentiment Index fell by 3.1% in September, reversing much of the optimism seen in August when the index surged 5.7%. Westpac characterised the current sentiment as “cautiously pessimistic,” reflecting growing concerns among households. The primary worry among consumers remains the persistently high interest rates, which have yet to be significantly reduced by the Reserve Bank of Australia (RBA). Many consumers are feeling the pinch, expressing increased anxiety about job security and showing reluctance to make major household purchases, signalling caution ahead. Similarly, the business outlook has softened. The NAB Business Confidence Index dropped to 4 in August, down from 8 in July, marking a three-month low. Despite the decline in confidence, there were encouraging developments in the broader business environment. The business conditions index improved, and forward orders increased, suggesting that while confidence is down, some companies continue to experience better operating conditions and future demand. The Reserve Bank of Australia recently cut interest rates by 25 basis points, signalling a shift toward easing monetary policy. However, markets are not expecting another rate cut at the upcoming RBA meeting on September 30. This cautious stance is supported by solid economic data showing that the economy remains resilient. The latest figures reveal that Australia’s GDP grew by 1.8% in the second quarter, an improvement from previous growth rates. At the same time, core inflation rose to 2.7% in July, up from 2.1%, indicating that price pressures are still present. Together, these economic indicators suggest that while some headwinds remain, including weakened confidence and high interest rates, the overall economy is showing enough strength to likely keep the RBA from cutting rates further in the near term. This combination of factors is helping to support the Australian dollar’s recent gains.