The Westpac Melbourne Institute Index of Consumer Sentiment rose by 3.5 percent in August to a reading of 105.7, from 102.1 in July.
A reading above 100 indicates optimists outnumber pessimists among respondents.Westpac chief economist Bill Evans said the result was the highest since March.
"However it is still seven percent below the average print in 2010 when households had become quite optimistic that the potential fallout from the global financial crisis had passed," he said in a statement.
Evans said several important forces were operating over the month to impact sentiment.
"Most important were the decision by the Reserve Bank to cut its overnight cash rate by 0.25 percent and the full pass through of this cut to mortgage rates; the announcement of the September 7 election date; the government's Economic Statement which revealed a further deterioration in the fiscal position; and the consolidation of the Australian dollar at around 15 percent below its recent peaks back in April," he said.
Evans said the August result indicates that the rate cut was likely to have had a solid positive impact on sentiment.
"Further evidence of the positive response to the rate cut can be found in the response of those folks with a mortgage, with their confidence lifting by 7.4 percent," he added.
The survey showed there was a bounce in the outlook for housing with "time to buy a dwelling" increasing by 3.7 percent.
"The interest rate cut appears to have boosted confidence around family finances," Evans said.
Westpac economists are not expecting the central bank to cut interest rates in September, but retain their view that there will be another rate cut in November.
"As the Australian dollar stabilizes, the labor market continues to weaken, inflation pressures remain contained and business confidence and investment remain soft, the case for further stimulus will be strong," Evans said.
