Australian business conditions edge higher in July but confidence stays fragile

Australian business conditions improved modestly in July, with the NAB business conditions index rising to +4 from +3, but confidence stayed weak at -6, signaling firms remain cautious amid elevated uncertainty. The report suggests the economy is holding up better than feared, yet still below trend and facing margin pressure from higher costs, especially transport and utilities as Gulf tensions pushed oil prices higher. Capacity utilisation climbed to 83.0% and employment/profitability improved, indicating underlying activity is resilient. For markets, the key takeaway is that the data supports the RBA’s expected decision to keep the cash rate unchanged at 4.35% while maintaining a cautious, data-dependent tone. The inflation risk from fuel-driven cost pressures may keep policymakers from sounding dovish, limiting downside for the Australian dollar and keeping rate-cut expectations subdued.