Together with this morning’s NAB survey, the reading strengthens the case for an RBA pause in December and lowers the odds of a sixth hike. That leaves the Australian dollar with little support from rate expectations, at a time when it is already exposed to swings in AI-linked equities. Front-end Australian bond yields are the most sensitive to any shift toward pricing an earlier end to the tightening cycle. Above-target inflation and petrol prices near A$2.40 a litre keep the RBA from pivoting quickly. Lower oil prices would be the fastest route to relief for households.

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Australian households are feeling as gloomy as they have only in genuine crises, and the RBA’s own rate hikes are a big part of why.

Summary:

• The Westpac-Melbourne Institute Consumer Sentiment Index fell 2.7% to 78.2 in November, the lowest since late 2022
• Readings this weak have otherwise only been seen during COVID, the global financial crisis and the recessions of the early 1980s and 1990s
• Higher petrol prices, 4.3% inflation and a fifth RBA hike this year, to 4.85%, are driving the gloom; mortgage holders’ sentiment hit a record low
• More than 70% of consumers expect mortgage rates to keep rising, and house price expectations turned negative
• Westpac expects the RBA to pause in December and does not expect a hike in February

Australian consumer sentiment fell to a four-year low in November, as rising living costs and another interest rate hike pushed households deeper into pessimism, a Westpac and Melbourne Institute survey showed on Tuesday.

The Westpac-Melbourne Institute Consumer Sentiment Index dropped 2.7% to 78.2 from 80.4 in October, its weakest reading since late 2022. Westpac noted that, apart from that period, readings this low have only been seen in the economy’s darkest moments, including the onset of the COVID pandemic, the global financial crisis and the recessions of the early 1990s and 1980s.

Cost-of-living pressure remains the main driver. Over the past month petrol prices have pushed toward A$2.40 a litre and official inflation has reached 4.3%. The Reserve Bank of Australia has also raised the cash rate by another 25 basis points to 4.85%, an 18-year high. Westpac said any lift from the US midterm results had been swamped by inflation and rate worries. Sentiment among mortgage holders slumped to a record low on data back to 1994.

The November fall was led by a sharp deterioration in near-term expectations for the economy, which dropped to their weakest since August 2020. Households also turned negative on house prices for the first time since late 2022, and more than 70% of consumers expect mortgage rates to rise further over the coming year. Job-loss fears are edging higher, though Westpac described consumers as on edge rather than alarmed.

For the RBA, the survey adds to evidence that its five hikes this year are biting hard on rate-sensitive parts of the economy. Westpac expects the central bank to pause at its December 7-8 meeting to assess the impact of its tightening. It does not expect a hike in February either, though it cautioned that high inflation will continue to test the bank’s resolve.

The weak mood is a concern for retailers heading into Christmas. Even so, Westpac said gift-spending intentions have held up better than headline sentiment suggests, with mortgage holders the most likely to cut back.

This article was written by Eamonn Sheridan at investinglive.com.