Election result likely weighed on Australia's business conditions and confidence in July

National Australia Bank (NAB) business confidence indicator declined by two points to plus 4 in July following 3 point gain in June. Federal election result likely weighed on Australia's business conditions and confidence in July. The slight drop in confidence reflects uncertainty around the effectiveness of the Government going forward.

July's drop nearly offset the previous month’s gains in a sign that the world’s 12th largest economy was losing momentum after a strong start to the year. On a quarterly basis however, business confidence has remained unchanged through the first six months of the year. The NAB has forecast GDP growth of 2.2 percent by the end of 2018, compared to the RBA's call of 3 to 4 percent.

The Reserve Bank of Australia (RBA) took additional measures to stimulate growth last week when it voted to cut interest rate by 25-basis-point to 1.5 percent. The RBA maintained a dovish sentiment in the official statement accompanying the cut. The Australian dollar has largely ignored last week's rate cut. The AUD/USD exchange rate has gained more than half a percent over the past five days.

The National Australia Bank has significantly changed its call on official interest rate movements, arguing the Reserve Bank is likely to make two more cuts to 1 per cent, with the possibility of introducing "unconventional" monetary policy if the outlook continues to deteriorate.