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, and sentiment was 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. Trading and profitability were weaker, and the employment index was unchanged.
Forward orders improved to +2 from -1. Capacity utilisation slipped to 82.9%, still 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%. Final product prices rose 0.5% versus 0.8%.
The business survey was conducted before the latest RBA rate rise. The original article said it was produced using an AI tool and reviewed by an editor.
Market Implications For Rates And Risk Assets
Australian consumer and business surveys are losing momentum. The Westpac consumer sentiment index has now fallen for three months in a row after the latest RBA rate hike. This suggests households are already feeling the impact of tighter policy. Since most consumers expect rates to rise further, this cautious mood may last.
Even with weaker consumer sentiment, we do not expect the RBA to soften its hawkish stance soon. Q4 2025 inflation was still above the target band at 4.1%. That points to continued pressure on the RBA to keep policy tight. As a result, interest rate futures may be pricing too little risk of another hike by mid-year. Traders may want to consider strategies that benefit if short-term rates stay firm or move slightly higher.
The business survey is mixed. Conditions and price pressures are easing, but capacity utilisation is still well above its long-run average at 82.9%. We saw a similar pattern in early 2025, when underlying economic strength stopped the RBA from pivoting even as sentiment softened. This suggests the economy is slowing, but not collapsing. That backdrop can create volatility, and may suit options strategies that look for a range-bound ASX 200 rather than a strong move up or down.
For the Australian dollar, the push and pull between a hawkish central bank and a slowing economy can be a headwind. With other central banks, including the US Federal Reserve, also staying firm, the AUD may struggle to rise on rate differentials alone. Traders may want to use currency derivatives to hedge against AUD weakness, especially versus the US dollar, if global growth indicators continue to cool.
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