On the even of the budget, the National Australia Bank’s latest monthly report says Australian business conditions and confidence softened in April.
And as a result of the Reserve Bank’s comments in its May Monetary Policy statement last Friday on inflation, the NAB has brought forward the timing our two rate rises in 2011 to June (or July) and September (previously August and November).
Ahead of the budget tonight, the dollar traded firmer yesterday, around 107.7 USc and the local stockmarket was up around 13 points.
This morning global markets improved with oil back over $US100 a barrel, gold, silver and copper higher.
And the Aussie dollar climbed back over 108 US dollars.
The NAB survey showed that the business conditions component of the survey declined to 5, from a reading of 9 in March, while business confidence fell to 7 from 9.
The NAB said the fall was an unwinding of some of the strong surge in March.
This was driven by a sharp fall in trading conditions and a drop in profitability, although employment edged higher.
The business conditions index is just below its long-term average, conditions in Queensland remain weaker than the national average.
And the bank said that while business confidence softened in April, it remained positive and is now in line with trend.
"Overall, it appears that the high Australian dollar is beginning to erode sentiment," the survey said.
The NAB said that by industry, further fundamental falls in conditions were evident in manufacturing, construction and personal and recreational services.
- Mining, while volatile, also reported much weaker conditions. Against that, wholesaling showed both better confidence and activity levels (on the back of better past retail results – albeit retail was stable in April).
The bank said forward orders were slightly weaker in April, and are neither expanding nor contracting, while stocks were unchanged and remain in positive territory.
- Capacity utilisation continued to rise, pointing to the likelihood of further tightening in the labour market.
- If conditions in April persist, the survey would be consistent with a strengthening in annualised domestic demand growth to around 3½%, and GDP growth to 3¾%, in the June quarter.
- Labour costs rose solidly in the month and also increased in annualised 3-month-average terms, which is consistent with rising employment growth and a tightening labour market. In contrast, price inflation remained fairly subdued in April and purchase costs eased after rising sharply in the previous month.
The NAB said that its global and Australian activity forecasts are broadly unchanged since the release of its Global & Australian Forecast Report in April.
"Our other forecasts will be fine tuned and released as part of our Federal Budget briefing, in place of our usual global & Australian forecasts for this month," the NAB said.
