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Westpac’s measure of consumer confidence was little changed in February rising 0.1% m/m to 92.2 as the positive effect of increased talk of a February rate cut following the Q4 CPI data was offset by global uncertainty and continued cost-of-living pressures. Consumers are not as pessimistic as they were in 2023 but confidence remains negative about current conditions but is improving regarding the outlook.  

Australia Westpac consumer confidence

• Family finances compared to a year ago were the weak point in the February Westpac survey falling 3.4% m/m, the second straight fall, but a year ahead rose 0.6% m/m.
• Perceptions of the economic outlook were more positive rising 1.6% m/m for a year ahead and 0.9% m/m for 5-years out.
• Unemployment expectations improved 1.1% to 125.8 signalling that perceptions of the labour market remain positive and employees are not expecting layoffs.
• The “time to buy a major household item” continued its gradual improvement rising 0.1% m/m to be up 4.7% y/y.
• Households were more pessimistic about the housing market in February with the “time to buy a dwelling” down 2.3% m/m after rising 10.2% in January but it still stands 18.4% higher than a year ago as rate hike expectations have dissipated.
• The Westpac survey was undertaken between February 3 and 6.

The USD is a touch higher in early trading, with the USD BBDXY index up over 1304.10. We remain within recent ranges for this index though. The yen is outperforming against AUD and NZD, albeit at the margins. US President Trump signed executive orders earlier bringing 25% tariffs on steel and aluminium imports into effect from March 4. 

• Trump made other remarks in the oval office, stating Tariffs on autos and chips and other areas, including pharmaceuticals will be coming next Trump stated. Reciprocal tariff details will also be released in the next few day, Trump added.
• He also stated he will consider an exemption for Australia, which follows an earlier phone call between Trump and Australian PM Albanese.
• AUD/USD has ticked down, last near 0.6270/25, while, NZD/USD is back to 0.5630. Both currencies are off 0.10-0.15% at this stage.
• US equity futures are down, a little over 0.20% for Eminis at this stage. There is no cash US Tsy trading today with Japan markets out. Tsy futures are ticking up in early Tuesday dealings.
• USD/JPY is down modestly, but at 151.80/85 remains within recent ranges. Other currencies are mostly down a touch versus the USD.
• Coming up we have NAB business confidence for Australia. Earlier we had the Westpac consumer confidence print, which was little changed at 92.2. 

The AU-US 10-year cash yield differential currently stands at -9bps, positioned in the lower half of the ±30bps range that has largely held since November 2022.

• A simple regression of the 10-year yield differential against the AU-US 1-year forward 3-month swap rate (1Y3M) differential over the past year suggests the current spread is about 10bps above fair value, estimated at -19bps.
• The 1Y3M differential, a key gauge of expected relative policy trajectories over the next 12 months, has traded within a 15bps range this year and is currently at the lower end of that range.
• The 1Y3M differential has declined approximately 90bps since mid-September, falling from +55bps to -35bps. 

Figure 1: AU-US Cash 10-Year Yield Differential (%)

Source: MNI – Market News / Bloomberg