Although a difficult job market and a contentious federal budget have sapped consumer confidence in recent months, Australia’s business sentiment surprised economists by actually improving in June, for the third consecutive monthly rise.

National Australia Bank’s closely watched monthly business survey shows that business confidence suffered no ill effects from the Abbott government’s “tough budget.” Instead, confidence improved in line with better business conditions, which reversed a downward trend by reaching their highest level since January.

To be sure, the business environment still faces considerable challenges, including a decline in mining investment and a stubbornly high Australian dollar, but historically low interest rates and the rate-sensitive sectors, such as housing, that benefit from them are helping support the broader economy. Service-oriented sectors also reported strong improvement in operating conditions.

Meanwhile, both sales and profitability rebounded for businesses, even as employment numbers slipped, with higher sales helping to spur restocking.

In fact, the NAB’s survey indicates that business conditions improved across all industries, with the largest positive changes in construction and mining (yes, mining–though the industry is still under substantial pressure as investment wanes).

The NAB did note that bellwether industries such as wholesale and transportation reported the lowest confidence levels among their peers, which suggests that the current positive trend may not be sustainable. Wholesale trade, in particular, posted the lowest number for business conditions among all industries.

As the NAB observes, weakness in wholesaling has persisted for more than three years. And given the sector’s strong correlation with overall economic performance, subdued conditions in this area portend continuing weakness in the broader economy as well. As such, we’ll be monitoring other indicators from this sector more closely in the future.

Even with the aforementioned restocking, the NAB’s forward orders index remained unchanged from the prior month, which suggests soft sales activity in the months ahead.

Not surprisingly, construction reported the strongest orders in June by a wide margin. Despite fears of a bubble, the country’s housing boom means the real estate sector continues to be the most obvious economic driver among the non-mining industries.

Interestingly, although capacity utilization fell in June, to 79.3 percent, its lowest level since January, businesses still decided to invest in future growth. The latest result for NAB’s capital expenditure index is now above its long-term average, in part because of a rise in non-mining investment.

Even though we’re pleased by the unexpectedly strong showing in business sentiment, current levels are still well below the euphoria that prevailed around the time of the country’s federal elections last September. That’s to be expected, of course, as actual governance rarely lives up to electoral promise, as evidenced by the fallout over the federal budget.

And given the weakness in key sectors, such as wholesaling, it does seem that business sentiment’s recent upward trend could soon stall.

One area to watch is the country’s exchange rate, which is still well above the level at which the Reserve Bank of Australia believes is necessary to boost the economy. The Australian dollar currently trades just below USD0.94, up 8.2 percent from the late-January low.

Though at present levels, the aussie is down 14.6 percent from its cycle high in mid-2011, it would still need to fall another 10 percent or more to truly boost the economy.

Still, we’ll note that even with all these challenges, the consensus among economists is that Australia’s gross domestic product should grow by 3.1 percent this year, which is well ahead of the comparatively tepid 1.7 percent forecast for the US.