Ratings agency Standard & Poor's (S&P) has raised Australia's budget outlook to stable, up from the negative label it gave two years ago, and reaffirmed its AAA sovereign credit rating.

Key points: The outlook means Australia is likely to keep its AAA rating for the foreseeable future

The outlook means Australia is likely to keep its AAA rating for the foreseeable future S&P lowered Australia's outlook from stable into the negative category after the 2016 federal budget

S&P lowered Australia's outlook from stable into the negative category after the 2016 federal budget S&P still expects property prices to "continue their orderly unwind"

The ratings agency lowered Australia's outlook from stable into the negative category after the 2016 federal budget.

Since then, there has been a one-in-three chance Standard & Poor's could downgrade Australia's AAA credit rating.

Today's change means Australia is back in stable territory and is likely to hold onto its long-term AAA sovereign credit rating for the foreseeable future.

"The stable outlook reflects the agency's expectation that the general government fiscal balance will return to surplus in the early 2020s," S&P said in a statement explaining its decision.

It expects the strong labour market and relatively robust commodity prices will lead to steady government revenue growth.

The statement also discussed Australia's housing market, saying "we also expect property prices to continue their orderly unwind".

But it warned any sharp falls could be problematic.

"While our base case is for a soft landing, our ratings could come under pressure if house prices fall sharply and increase risks to fiscal amounts, real economic growth and financial stability."

Back in July 2016, S&P pointed to Australia's double-dissolution federal election outcome as a contributing factor in its decision.

It also noted record housing debt among its biggest concerns when it lowered the outlook to negative.

But today's upgrade suggests, while household debt remains an issue for many, the agency believes Australia's broader economy is in good shape.

Banks are not given the same boost

S&P said credit pressure remains for Australia's major banks, and it had left its ratings outlook for them unchanged at negative.

It said pressure remains on government supportiveness for Australia's banks.

The agency said the big four banks — ANZ, CBA, NAB and Westpac — all maintain a AA rating with a negative outlook.

Cuscal and Macquarie Bank continue to have a credit rating of A with a negative outlook.

"We consider there remains a one-in-three risk of a downgrade of the four major Australian banks, Macquarie Bank, and Cuscal over the next two years," S&P said in a statement.

But S&P expects to revise the outlook on those to stable in the next two years, if it believes pressures on government supportiveness toward the banking sector have eased.