Strong dollar and soft demand take a bite out of business confidence

The strong Australian dollar and a lack of demand in the non-mining sectors of the economy have seen business conditions and confidence weaken slightly in February, after a rise the month before.

The strong Australian dollar and a lack of demand in the non-mining sectors of the economy have seen business conditions and confidence weaken slightly in February, after a rise the month before.

Business conditions fell to minus 3, down from minus 2 in January, as firms recorded modest falls in profitability, although employment conditions improved, the National Australia Bank's monthly survey of more than 400 firms found.

"Perhaps most concerning is the slump in forward orders, with the index declining to its lowest level since May 2009," NAB chief economist Alan Oster said.

"Combined with still-low capacity utilisation, stocks and employment and capital expenditure readings, forward indicators imply little improvement in near-term demand."

Conditions in the retail, wholesale, recreation and personal services sectors picked up, while mining activity lifted as commodity prices rose. Conditions in construction and manufacturing stayed poor.

JPMorgan economist Tom Kennedy said the survey showed domestic conditions remained challenging despite global improvement.

At the same time, the market continued to lower expectations of a rate cut in April.

Markets were pricing an 18 per cent chance of an interest rate cut of 25 basis points in April, and a 75 per cent chance of a 25 basis points cut for the rest of 2013, Credit Suisse data showed.

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