Australian business confidence surged in August as firms hoped a Federal election would put an end to political uncertainty, though Tuesday's survey showed actual conditions were weak with a worrying downturn in employment.
National Australia Bank's monthly survey of over 600 firms found confidence improved across all sectors following a cut in interest rates early in August and ahead of an expected victory by the conservative Liberal National Coalition in elections which took place on Sept. 7.
The change in government which brought Conservative leader Tony Abbott to power in Saturday's federal election, does not expect to change the government's economic policies significantly from the outgoing Labor government. Analysts are saying that now that the elections are over the economy should see a boost in confidence and investment plans that were on hold before the election should now be implemented.
Australia's benchmark stock index rose 0.6 percent on Monday, while the Australian dollar firmed to a three-week high at 0.9220 per U.S. dollar.
AUD/USD
The Aussie traded higher against the US Dollar as Australian business sentiment showed improvement in August. Survey data reported the highest business confidence index level since May 2011 as well as a slight uptick in current conditions. Improving sentiment could drive more activity in the economy and lead investors to reduce their expectations for the Reserve Bank of Australia to cut rates. This release likely reinforces recent positive data coming from Australia’s largest trading partner (China) hinting at the possibility of higher regional growth.
"While it is difficult to prove, it is likely that expectations of political change and a decisive result were very important " said NAB's chief economist, Alan Oster.
Oster also noted there had been a solid and synchronized lift in business confidence across the advanced economies in recent surveys globally.
"That said Australian confidence is now only back to average levels and much will depend on whether the current bounce is maintained or erodes away in the face of poor business conditions," Oster cautioned.