Australian business conditions weaken in june survey

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SYDNEY, July 9 Australian business conditions weakened sharply in June as sales and profits both suffered from a lack of demand, though a drop in the local dollar seemed to lift optimism at some firms, a survey showed on Tuesday. National Australia Bank's monthly survey of over 400 firms was grim enough for the bank to change its forecasts for domestic interest rates, and it now expects a cut in August rather than November. The survey's main measure of business conditions dropped 4 points to -8, its lowest since May 2009, led by declines in sales and profitability. Indices of employment and forward orders both remained weak, while exports improved a little. Its measure of optimism did rise a point to 0, meaning optimists and pessimists were in balance. For a graphic click on: link.reuters.com/qar23t

"Most concerning was the collapse in retail, mining and manufacturing conditions, with retail activity deteriorating to its weakest level in the history of the monthly survey (since 1997)," said NAB's chief economist, Alan Oster."All of this weakness has come about despite relatively easy monetary policy settings and the recent depreciation of the dollar, which should be helping to improve competitiveness."

The Australian dollar has fallen almost 14 percent against its U.S. counterpart since April. The Reserve Bank of Australia (RBA) also cut interest rates to a record low of 2.75 percent in May and is ready to ease again if needed. Lower rates did seem to be helping some sectors with conditions in finance, business and property lifting to their highest level in two years. There was also a big improvement in confidence in the hard-hit manufacturing sector.

Investors think at least one more rate cut will be necessary to support activity as a long boom in mining investment finally levels off. Swap rates put the chance of an easing in August at 48 percent while interbank futures are fully priced for a move by November <0#YIB:>."We see the risks for the remainder of 2013 beyond August as skewed towards another cut, but heavily data dependent, particularly relative to the labour market deterioration we have currently factored in," added Oster. Inflation would seem to be no bar to a further easing with Tuesday's survey showing little pricing pressure in June. Final product prices fell for a second month while growth in labour and input costs moderated.