Australian Consumer Sentiment Drops To Four Year Low

Australian Consumer Sentiment Drops To Four Year Low
October 10, 2019


The Australian dollar managed to trade in a narrow range against the US dollar yesterday despite the release of a four-year low consumer sentiment index figure by the Westpac-Melbourne Institute. The announcement of fresh sanctions by Washington against Chinese enterprises, two days before the start of trade discussions, has made the financial market nervous, leading to the weakness in the US dollar. The AUD/USD pair traded between 0.6747 and 0.6727 in the past 24 hours.

The Westpac-Melbourne Institute Index of Consumer Sentiment declined to 92.80 in October, from 98.20 in the previous month. The reported figure was the lowest since July 2015. In general, interest rate cut boosts consumer spending and also creates an optimistic opinion about personal finances. However, it is yet to happen in case of Australia.

The report says, “This result will be of some concern to the monetary authorities. Typically, an interest rate cut boosts confidence particularly around consumers’ expectations for and assessments of their own finances.”

The survey report also states that the indicator measuring assessment of current family finances declined 4.9% to 80.2 and that for future family finances dropped 3.7% to a five-year low of 93.30. In spite of the rate cut, expectations for the economy for 2020 fell 6% to 87.1, while the five-year outlook dropped 9.1% to 88.9.

Consumer spending also deteriorated in October. Likewise, the ‘time to buy a major household item’ sub-index dropped 4.2% to 114.5.

According to Bill Evans, chief economist at Westpac, the degradation in the US-China trade relations has also contributed to the decline in consumer spending in October.

The Westpac-Melbourne Institute Index report also forecast another rate cut of 50 basis points in February 2020 and not in the upcoming meeting, which is scheduled for November 5th. Westpac anticipates the Board to leave the benchmark interest rate unchanged in the next meeting. Westpac believes that despite the unanticipated drop in the Index the Board will hold on for a while to ascertain the effect of previous three rate cuts before deciding to slash rate again. The Westpac report states that “the signals around how consumers are assessing their own finances are worthy of detailed consideration before the Board embarks on its next move.”

If the labor market and global economic condition worsen, Westpac expects the Reserve Bank of Australia to cut interest rates by 50 basis points in December 2019.

Earlier this week, the report released by the National Australia Bank indicates that the business conditions index increased from +1 to +2 in September. However, the business confidence index fell from +1 to 0.

Alan Oster, Chief Economist at NAB Group, opined that the slowdown in the business sector might soon have its impact on investment and employment opportunities: “The results of the September survey suggest more of the same for the business sector. Conditions edged up, and confidence was marginally lower, but both remain below their long-run average – well below the levels seen just over a year ago. This suggests that activity in the business sector has slowed and we fear the risk that this spreads to both investment and employment intentions.”

In the meantime, the US blacklisted several Chinese enterprises, prohibiting them from purchasing US technology. The announcement, which has come just two days before the crucial trade talks, has come under fire by several think tanks.

Max Baucus, former US ambassador to China, expressed disappointment over blacklisting of Chinese enterprises just before the restart of trade negotiations: “You don’t do these things prior to negotiations. It does not set a good tone, that’s tactical. Strategically, all these actions — I think — are causing the Chinese to wonder: ‘What is the US’ real motive here?’”

The weak consumer sentiment and heightened trade tensions between the US and China are expected to keep the Aussie volatile in the days to come.

Technically, the AUD/USD pair is trading above its 50-day moving average. Furthermore, the stochastic oscillator is also rising towards the bullish zone. Therefore, we can expect the currency pair to move up in the short-term. The next resistance is anticipated at 0.6775 levels.

AUD - technical analysis - 10th Oct 2019

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Janine is our editor for related stock market news. Andrew and Janine will be focusing on providing the latest trends and where the next hit could be

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