Australia’s business survey results showed mixed outcomes, with the NAB March Business conditions increasing by 1 point to 4, while business confidence dropped by 1 point to -3. The Westpac-Melbourne Institute Consumer Sentiment index fell to 90.1 in April from 95.9 in March, marking a six-month low, attributed to tariff disruptions.
RBA Governor Michele Bullock is scheduled to deliver a keynote speech on Thursday, with markets anticipating a potential shift in her policy stance due to economic risks. Cash rate futures currently predict a 25 basis point cut during the RBA meeting on May 20, alongside a 40% chance of an additional cut.
Business Sentiment And Conditions
Given the recent NAB survey results, it is clear that while firms see stable trading conditions, forward-looking sentiment remains subdued. Business conditions ticking up slightly to 4 suggests that companies are still managing operational challenges reasonably well. However, the general lack of confidence, now in negative territory at -3, signals that firms are not optimistic about the outlook. For us, this divergence tells a story of resilience being tested by external shocks and fading demand forecasts.
On the consumer side, the persistent drag is more pronounced. The Westpac-Melbourne Institute Consumer Sentiment index dropped sharply by nearly six points to 90.1 in April, marking the lowest reading since October. This decline cannot be dismissed as noise. The underlying cause—tariff-related disruptions—hints at whether supply chains are becoming more disorderly, feeding into higher household costs. If consumers are next to pull back on spending, pressure builds further on businesses already lacking forward momentum.
In the context of rates, we are watching Bullock’s Thursday address with heightened focus. If she chooses to hint at growing downside risks, particularly tied to consumer weakness and global trade developments, the market’s expectations for a rate cut on May 20 will firm up. At present, swap markets have priced in a single 25 basis point cut with a fair probability of a second. That shift in pricing has been gradual, not knee-jerk. It suggests that recent data is beginning to outweigh previous hawkish tones.
Market Volatility And Rate Expectations
What this tells us is that forward volatility may increase. Rate expectations are no longer anchored, and positioning around RBA meetings is likely to flip more abruptly on data surprises. Short-end rates could become more sensitive to speeches or surprise CPI prints. We should be leaning more into the rates curve, especially where the market is slow to price in further easing. Any steepeners across short-to-intermediate durations present a viable setup.
Given how closely markets are tracking guidance nuances, Thursday’s speech won’t just offer colour—it may directly move front-month futures. We can look for signs in Bullock’s tone: whether she downplays recent inflation moves or echoes concern about demand slipping too fast. Should she appear more open to adjusting the rate path to maintain momentum, rate cuts may get pulled forward even more.
Over the next fortnight, as positioning builds into the May RBA meeting, implied vols in 1m options could widen. That creates a tactical window for premium sellers, but only if there’s clarity around the policy path. Skew may shift toward downside strikes across Aussie rates, particularly if more dovish remarks are confirmed.
