Dollar's fall boosts business confidence

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Business conditions improved in September, thanks to a falling Australian dollar and talk of an interest cut, a survey shows.

The National Australia Bank (NAB) Business Survey for September showed that business conditions rose five index points to plus two points, moving above the zero level that separates expansion from contraction.

The NAB said the improvement showed the Australian economy could be stabilising.

"However, there are still signs that a swift recovery may not ensue," the NAB said in a statement accompanying the survey.

After the Australian dollar hit a post-float record high of US110.81c on July 27, it fell on the back of negativity about the eurozone government debt crisis. For most of September, the local unit was trading below US105c and fell below parity with the US dollar toward the end of the month.

A falling Australian dollar means exported goods become cheaper and mining, manufacturing and agriculture exported products are more competitive.

The Eurozone crisis also prompted speculation that the Reserve Bank of Australia (RBA) would cut its interest rate from the current level of 4.75 per cent. The NAB said these two factors prompted business conditions to rebound sharply in September.

"Confidence rose across a majority of industries in the month, with a particularly strong rise in manufacturing implying that the lower Australian dollar provided some relief.

"The survey results signal caution about the likelihood of monetary policy being loosened in the near term, although the odds of a rate cut are clearly higher following the slowing in global growth and financial market volatility," the NAB said.

JP Morgan economist Ben Jarman said the rebound in business conditions came a month after retail sales and commodity exports surged.

"On both these fronts, the turn in monetary conditions (the value of the Australian dollar) seems to have played a role in September," he said.

Retail spending rose 0.6 per cent in August and 0.5 per cent in July, after falling the previous two months, Australian Bureau of Statistics data showed.

In August, exports of iron ore and coal surged, pushing the trade balance to near-record levels that month.

JP Morgan and the NAB both still forecast there will be no move on the RBA's cash rate at least until the middle of 2012.

- AAP