The Australian Dollar opens this morning after its best week for several months; rising for four consecutive days then only finally giving ground to a resurgent US Dollar in the last few hours of trading in New York on Friday. Having opened the week at 0.7515 and moved steadily higher, AUD/USD jumped to 0.7668 immediately after the employment numbers were published on Thursday and then onto a high of 0.7689 on Friday; its best level since November 10th.
Soaring US equity markets on Friday dragged up the USD in their wake to leave the AUD at USD0.7641 at the New York close. Over the course of the whole week, the Australian Dollar was the second-best of all the major currencies we track here; just knocked off top spot by the Kiwi Dollar.
The main event in Australia today was the Government’s Mid-Year Fiscal and Economic Outlook (MYEFO). This update traditionally gives the Government a good opportunity to make soothing noises to the international ratings’ agencies about economic growth and debt sustainability. In this regard, today’s MYEFO was exactly as expected.
The Government continues to forecast a return to budget balance in 2019-20 and then a surplus of $10.2bn in the 2020-21 fiscal year. A slowdown in the housing market and slower growth in wages have reduced the estimate of 2017-18 GDP from 2.8% to 2.5% though the unemployment rate is now see a quarter of a percent lower at 5.5% and CPI has been left unchanged at 2.0%.
The initial reaction from the credit agencies was broadly positive. Moody’s said, “Overall, the modest changes in Australia’s fiscal and economic outlook maintain a credit-positive commitment to returning the budget to a surplus in fiscal 2021.
Moody’s continues to see risks that fiscal deficits will be wider for longer than the government projects. This reflects our expectation for more subdued nominal GDP growth than over the past decade, a consequent dampening of revenue generation and a testing climate for spending restraint. The mild reduction in the expected profile for wages growth embodied in the forecasts remains a concern.”
The AUD opens in London this Monday morning at USD0.7665 with GBP/AUD at 1.7405.