Falling Business Confidence Puts RBA on Awkward Footing

Australian businesses were at their most pessimistic in April since September 2001 according to National Australia Bank, whose confidence index dropped to -8 following last month's reading at -4. A negative reading signals more survey respondents expect their prospects to deteriorate versus improve in the near term. The result supports last week's assertion by Governor Glenn Stevens of the RBA that the economy is slowing. Unfortunately for monetary policy makers, the decline does not seem to be counteracting inflationary pressure as of yet. The economy seems to be becoming increasingly skewed, with the buoyant mining sector on one side and everyone else on the other. Mining exports have been doing well as Chinese demand for these goods remains unshaken. From a policy standpoint, the most likely scenario is for the RBA to remain on hold. To continue raising rates may risk seriously injuring an economy already burdened with record borrowing costs. On balance, to cut rates as mining continues to boom alongside rising global input prices could mean losing grip on the leash around the price level. A firm stance at current interest rates presents the most viable option in the near term, with the hope that the US-led global slowdown will help relieve inflationary pressure. To be sure, the RBA will have some tough decisions in front of them at the next meeting on June 3rd.

DailyFX

Disclaimer

Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. Accordingly we make no warranties or guarantees in respect of the content. The publications herein do not take into account the investment objectives, financial situation or particular needs of any particular person. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the recommendations in this website. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. All intellectual property rights are the property of Daily FX. Daily FX and its affiliates, will not be held responsible for the reliability or accuracy of the information available on this site. The content herein is provided in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Daily FX or its affiliates. The reader agrees not to hold Daily FX or any of its affiliates liable for decisions that are based on information from this website. Daily FX highly recommends that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources.