Oil volatility and rising rates drive Australian business confidence to -13: NAB

Energy price rises are the key worry: swings caused by Houthi attacks on Saudi Arabia and the wider Iran conflict are pushing up expenses and hurting sentiment, so a further increase in energy costs would likely drive confidence even lower. The survey underlines the challenge for the Reserve Bank, with companies turning negative due to higher borrowing costs even as the central bank, as indicated in minutes issued today, expresses concern about domestic capacity constraints and increasing inflation expectations among businesses. Weak sentiment might suggest holding back on more rate rises, but the RBA has indicated it is willing to tighten again if inflation persists, making the Australian dollar and short-term bond yields reactive to upcoming inflation figures. The relative strength of the mining sector implies that resource-related stocks might continue to do better than domestic-focused industries.

In brief: NAB stated that business confidence dropped 4 points to -13 in September because of Middle East oil swings and increasing financing expenses, while conditions stayed at -1, with both measures far under their long-term averages following the RBA's rate increase to a 15-year high.

One-sentence summary: Though Australian companies are not collapsing, the combination of oil fluctuations, rising borrowing expenses, and ongoing RBA rate increases is driving sentiment lower.

Summary:

• NAB's index of business confidence dropped 4 points to -13 in September, far under the February level before the US-Israeli conflict with Iran started.
• The business conditions index stayed at -1, but NAB noted that the slipping confidence indicates conditions may worsen.
• Confidence declined in five out of eight sectors; mining, wholesale and retail showed some gains, yet in trend terms only mining stays positive.
• NAB pointed to high energy prices, rising borrowing costs, and reduced domestic growth, which kept both indicators under their long-run averages.
• September saw severe oil price swings after Houthi missile and drone attacks on Saudi Arabia.
• Last month the RBA increased its cash rate to 4.60%, the highest in 15 years, the fourth rise this year, and cautioned that further tightening might be needed.

Main report: According to a National Australia Bank survey reported by Reuters on Tuesday, business confidence fell further in September, with an oil price surge related to rising tensions in the Middle East stoking cost worries, while conditions remained flat at low levels.

The NAB confidence index decreased 4 points to -13, far under the February reading prior to the US-Israeli conflict with Iran. The conditions index, measuring trading activity, profitability, and employment, held at -1. NAB remarked that the ongoing drop in confidence implies that conditions will probably worsen in coming months.

The bank noted that energy prices are still high, borrowing costs have increased, and domestic growth has decelerated in 2026, adding that given these factors it came as no surprise that both confidence and conditions were significantly under their historical averages.

The drop was widespread. Confidence deteriorated in five of eight industries during the month. Mining, wholesale, and retail registered some improvement, but in trend terms confidence is negative in all industries except mining.

September oil markets saw high volatility after Yemen's Iran-supported Houthis conducted missile and drone attacks on Saudi Arabia. These strikes, a result of the wider US-Iran conflict, drove crude prices up and heightened fears of sustained inflation, increasing cost burdens for Australian companies.

The survey arrives while the Reserve Bank of Australia is still tightening. The central bank lifted its cash rate to 4.60% last month, a 15-year peak and the fourth increase this year, and cautioned that more increases might be required to manage inflation. Minutes of that meeting made public on Tuesday revealed that the board considered domestic capacity pressures bigger than earlier estimated and referenced business surveys indicating increasing inflation expectations among companies.

The newest NAB numbers indicate that the mix of increased energy expenses and stricter monetary policy is affecting business sentiment more heavily. Since confidence frequently precedes conditions, the next months will reveal if the drop in sentiment leads to reduced hiring and investment, which the RBA will monitor as it considers next steps.