NAB survey shows confidence improved to -5 in June, retail prices fell for first time in seven years. Oil's jump to $85 threatens to reverse the gains.
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Australian business confidence improved in June, a National Australia Bank survey showed Tuesday, and retail prices posted their first decline in seven years. The data captured a brief window of calm after the U.S. and Iran signed a ceasefire agreement that ended a multi-month conflict and eased energy costs. That window has already closed.
NAB's business conditions index held at +3 for a third straight month. Confidence rose to -5 from a deeply pessimistic -14 in May, a move the bank attributed to the ceasefire. Product price growth slowed back to its February level. Retail prices fell for the first time since 2019, a reading that would normally signal disinflation and give the Reserve Bank of Australia room to pause.
Those price signals are already stale. The U.S. renewed military strikes on Iran this week and reinstated a naval blockade of the Strait of Hormuz. Brent crude jumped about 2% to $85 a barrel, its highest since mid June. The fuel-cost relief that underpinned the NAB and Westpac consumer confidence surveys has evaporated within days.
For the RBA, the timing is awkward. The central bank has raised rates three times this year to 4.35% in response to the initial energy shock. It held policy steady at its June meeting, a decision that supported the Aussie at the time (see Dollar Holds above JPY 160 after BOJ Hike; Aussie Firms on RBA Hold). The RBA explicitly warned that further tightening could not be ruled out. The renewed oil spike increases the probability that the next move is a hike.
Market pricing for the August meeting has shifted. Traders see a higher chance of a 25-basis-point increase as Brent stays above $80. Higher oil prices also pressure Australia's terms of trade, a negative for the currency. The AUD has already slipped against the dollar this week, though the RBA's hawkish stance has cushioned the fall.
Australian government bond yields have risen in sympathy with the oil move, reflecting higher inflation expectations. The 10-year yield is up about 10 basis points since the escalation. The RBA's next policy meeting is scheduled for August. The trajectory of oil prices between now and then will determine whether June's softer survey data is a brief respite or a turning point.
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