Australian Business Sentiment Surges Most in More Than a Decade

Australian business confidence rebounded by the most in more than a decade after the central bank’s sixth interest-rate cut in 14 months and U.S. lawmakers reached a budget deal, a private survey showed.

The confidence index for December rose to 3 from minus 9, according to a National Australia Bank Ltd. survey released today of more than 500 companies taken Jan. 9-15. The increase is the biggest improvement in sentiment since October 2001. The business conditions gauge, a measure of hiring, sales and profits, improved to minus 4 from a revised minus 6.

Reserve Bank of Australia Governor Glenn Stevens and his board cut the benchmark rate to 3 percent last month, matching the level reached from April-October 2009 that was the lowest since 1960, as the economy struggles under a sustained high currency. U.S. lawmakers approved a measure in early January averting tax increases and spending cuts that threatened to send the world’s biggest economy into a recession.

“It is likely that much of the change in sentiment was a result of improvements in financial and equity markets,” NAB Chief Economist Alan Oster said in the report. “Whether this feeling of relative optimism will be sustained into the New Year remains to be seen.”

Australia’s benchmark stock index gained 14.6 percent in 2012 and MSCI World Index rose 13.2 percent over the period.

The local dollar has risen 7.4 percent since June 1 as central bank easing abroad encourages investors to buy the Australian currency. The so-called Aussie’s appreciation has put pressure on industries that compete with imports, including manufacturing and services.

Business conditions “remain poor,” Oster said. “Of greater concern is the weakness in forward indicators of demand -- with poor forward orders; capacity utilization and capital expenditures at depressed levels, and credit demand back to record low levels.”

Traders are pricing in a 30 percent chance the central bank will reduce rates by a quarter percentage point to a record-low 2.75 percent when the board meets next week, according to interest-rate swaps data compiled by Bloomberg.

Before it's here, it's on the Bloomberg Terminal.