Australia business conditions hit six-year low as forward orders slide: NAB

The survey strengthens the case that the RBA’s five hikes this year are biting, and lowers the odds of a sixth. Elevated input costs and underlying inflation well above target still argue against any early pivot to easing. That leaves the cash rate on hold at 4.85%, a stance that offers the Australian dollar little support from rate expectations. Softer domestic data compound the pressure on the Aussie, which is already trading as a proxy for AI-linked equity sentiment. Australian bond yields at the front end are the most likely to respond if markets start pricing cuts further out.

--

Australian firms are being squeezed from both sides, with demand fading and costs still climbing, which is exactly the bind the RBA now faces.

Summary:

• NAB’s business conditions index fell 1 point to -2 in October, the lowest since August 2020, as forward orders dropped sharply
• Business confidence fell 1 point to -15, far below its long-run average of +5
• Retail reported the weakest confidence, conditions and forward orders, and construction also softened
• Purchase cost growth rose 0.1 percentage point to a quarterly 2.4%
• NAB says cost pressures remain a risk to inflation while slowing growth threatens labour demand
• The RBA has hiked five times this year to 4.85%, an 18-year high; underlying inflation was 3.6% in September

Australian business conditions fell to their weakest level in six years in October as forward orders dropped sharply, a National Australia Bank survey showed on Tuesday. The survey points to slowing domestic demand under the weight of higher borrowing costs and persistent cost pressures.

The survey’s business conditions index slipped 1 point to -2, the lowest reading since August 2020. Business confidence also fell 1 point, to -15, far below its long-run average of +5. NAB said conditions have been trending gradually lower in recent months, suggesting growth has slowed further in the second half of 2026 from an already softer first half.

Retail reported the weakest confidence, conditions and forward orders of any industry. Construction, which had held up well this year, also showed signs of softening.

Costs remain a sticking point. Purchase cost growth picked up 0.1 percentage point to a quarterly rate of 2.4%, keeping input price pressures elevated even as demand slows.

That combination sums up the Reserve Bank of Australia’s dilemma, according to NAB. The bank said cost pressures remain a serious risk to the inflation outlook, but growth is slowing and labour demand may soften in the months ahead. The RBA has raised rates five times this year, taking the cash rate to an 18-year high of 4.85%, in response to stubborn inflation. Underlying inflation was running at an annual 3.6% in September, well above the central bank’s 2% to 3% target band.

The survey adds to signs that the RBA’s tightening is biting. With forward orders falling and confidence deeply negative, the case for further hikes looks weaker, though elevated costs and above-target inflation make an early shift toward easing unlikely. For the Australian dollar, already under pressure from the slide in AI-linked stocks, softer domestic data add another reason for caution.