[B]Intra-Day Market Moving News and Views
19 Dec 2016[/B] [I]02:00GMT[/I]
AUD/USD - .... Aussie shrugged off deepening Australia's budget deficit and edged higher to 0.7313 in Asia. Reuters reported Australia's conservative government on Monday forecast a A$10 billion deterioration in its budget deficit over the next four years but still hoped to snatch a surplus by 2020/21 and forestall a downgrade in its top credit rating.
There have been fears the update could trigger a downgrade in the country’s prized triple-A rating and push up borrowing costs on over a trillion dollars of federal, state and bank debt.
Facing slowing economic growth and a seemingly intractable deficit, Treasurer Scott Morrison reaffirmed an aspiration to return to surplus June 2021 through a mixture of spending cuts and tax-raising measures.
A downgrade would also be a political nightmare for the Liberal National government of Prime Minister Malcolm Turnbull, which has long sold itself as a competent economic manager that can be trusted to balance the books.
The budget update showed the government expected a A$36.5 billion deficit for the year to June, slightly narrower than the initial forecast of A$37.1 billion. It then projected a steady, if slow, improvement to A$10 billion by June 2020.
The Treasurer also revised down estimates for gross domestic product growth for this year and next after the A$1.6 trillion economy surprisingly contracted by 0.5 percent in the September quarter, the first shrinkage since 2011.
It now expects GDP growth of 2 percent in 2016/17, down from 2.5 percent, and a pick up to 2.75 percent in 2017/18.
One bright spot has been a recovery in prices for many of Australia’s major commodity exports, with coal and iron ore surging in the past few months. If sustained, that will add billions to the tax take and could ease the pressure on the ratings.
And even if the country is downgraded, analysts said they doubted that it would have much of an impact on bond yields or investor confidence.