Australian businesses are benefitting from a combination of a low exchange rate and low interest rates according to according to NAB’s latest Monthly Business Survey. NAB’s Business Conditions Index moved two points higher to 12 and the Business Confidence Index rose 3 points from 3 to 6. This was in spite of the survey being carried out immediately after the UK’s EU vote and amid the uncertainty of the lead-up to the Federal election.
Alan Oster, NAB’s chief economist said, “The results point to further improvement in the non-mining economy in Q2, with growth potentially becoming more broad-based – although evidence is mixed.” Mr Oster thinks while the RBA’s August meeting is “live”, rates will remain unchanged, although he acknowledges the decision will be a close call.
Andrew Hanlan, a senior economist at Westpac said, “This confirms that the non-mining sectors are benefitting from low interest rates and a sharply lower currency. Importantly, the dip in conditions evident late in 2015 and in early 2016 has proven to be a temporary soft spot.”
Not all businesses are doing so well, however. Business conditions are still negative in Western Australia, a hang-over from the end of the mining investment boom but in all other states, conditions are positive. Especially in New South Wales and Victoria.
Bond and currency markets reacted to the new figures in a manner which suggest higher interest rates are more likely. The AUD immediately rose from 75.7 US cents to 75.9 US cents while implied yields on 3 year bonds rose 3bps to 1.51% and yields on 10 year bonds rose 4bps to 1.95%.