Solving Australia’s latest confidence conundrum

Some simple but effective analysis proves that pretty much all of the recent rise in Australian business confidence relative to consumer confidence can be explained by the recent weakening in the dollar. Our forecast that the dollar will fall further therefore suggests that business confidence will remain higher than consumer confidence, which bodes well for the outlook for investment. That said, we wonder whether some of the support to business confidence will be offset by the delayed hit to the real economy from the sharp fall in the prices of key commodity exports.