Australian business sentiment softened in November, with NAB's latest survey showing confidence dropping and operating conditions turning cooler, despite firms still facing tight capacity and persistent inflation.

After a run of strong months, Australia's business conditions index slipped three points to +7, while confidence dropped more sharply to just +1. Companies reported weaker sales and falling profits, mostly due to softer consumer demand following October's highs.

Even so, capacity utilization climbed to 83.6%'the highest in a year and a half'suggesting many firms are operating near their limits. Input and retail price pressures remain elevated, keeping inflation in focus.

With these mixed signals, the Reserve Bank of Australia is widely expected to keep interest rates steady at 3.60% as officials weigh persistent inflation against weaker business optimism.

High capacity use and stubborn input costs mean inflation is sticking around for now. With many firms operating near full tilt, a bump in demand could lift prices and push the RBA to keep rates higher for longer. How policymakers respond will ripple through equity and currency markets heading into 2026.

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