Potential AUD Reaction to Westpac Consumer Sentiment

The next major event on the economic calendar that could affect the AUD and NZD is the release of Westpac’s Consumer Confidence survey.

Immediately after the release, we could have a couple of dozen pip move in the market. But for long term FX traders, it’s relevant to get a better understanding of the future evolution of the AUD.

Consumer sentiment is one of the driving factors in inflation. And, from there, it could determine whether the RBA will take action to maintain price stability.

The central bank has been desperately trying to get consumers back into the market and get them spending. But, so far, it appears to not be all that successful.

The next set of data will help us see if there is some improvement. Or, it might increase the likelihood that the RBA will bring forward their next rate cut.

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What Are We Expecting?

Last week, the National Australia Bank published its State Economic Overview report. This included a survey of consumer sentiment at a state level.

The conclusion was that consumer sentiment had weakened since the prior survey, which foreshadows that the Westpac version will also be lower than prior.

However, the Westpac survey is conducted two weeks after the NAB’s. So, that would put it after the latest RBA move.

September’s Consumer Sentiment survey dropped into negative -1.7%. The survey tends to fluctuate quite a bit, with a negative figure followed by a comparable positive result.

Without a consensus among analysts, a result hasn’t been priced into the market. Generally, however, two consecutive negative reads in consumer sentiment provide a negative outlook for the currency. The last time that happened was at the beginning of the housing crisis in December.

As for a chance for a bump on the upside, we wouldn’t expect a significant move higher unless the result beat the mirror of last month’s result. In other words, above +1.7%.

This would break the downward trend in consumer sentiment that’s been the average since the beginning of the year.

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The Details

Unlike the business sentiment figure released earlier today, the consumer sentiment survey asks respondents how they expect their personal finances to evolve over the next year. This gives us a longer horizon of expectations.

To get some insight into what’s going on with consumer sentiment in the increasingly low-interest-rate environment, we can look at other indicators. In order for consumers to spend, they need to have money, be it from their salaries or from credit.

Jobs Numbers Still Strong

Australia continues to add jobs, despite the relatively poor performance in the economy. The rate, however, hasn’t been enough to keep up with the number of people entering the workforce.

So, unemployment has been slowly ticking up since the beginning of the year.

Unemployment growth hasn’t been enough to dampen wage growth, however. It continues at pretty much the same pace all year long.

Where consumers are cutting back, and to the presumed annoyance of the RBA, is in credit. Private credit has been trending downward the last several months, with a smaller proportion of Australians taking on debt. Part of that might be explained by the drop in home sales.

In any case, the latest trends show consumers are not convinced the worst is behind them. That is likely to keep inflation low.

Unless there is a significant change in consumer sentiment in the near future, AUD would likely stay under pressure as traders try to calibrate when the next RBA cut will be.

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