Australian dollar climbs on ‘growth’ budget

The dollar was higher today following the budget, which offered few surprises and was favourably received by ratings agencies.

The Australian dollar was higher today following the government’s 2015-16 budget, which offered few surprises and was favourably received by ratings agencies.

Treasurer Joe Hockey crafted a budget that was focused more on stoking flagging growth and generating jobs, than cutting spending, which was a key feature of the prior budget.

“Unlike last year’s unpopular budget, there is a focus on growth rather than deficit reduction,” said Sean Callow, currency strategist at Westpac.

Ratings agencies quickly affirmed Australia’s AAA rating with a stable outlook after the budget, which aims to return to surplus in five years.

Atsi Sheth, sovereign analyst at Moody’s, said Australia still had relatively low government debt levels and had a “cushion” in place that gave the government room to map out a return to surplus over coming years.

Ms Sheth wasn’t surprised at the absence of more aggressive budget austerity measures in the budget, adding that hefty spending cuts now would have risked slowing an already sluggish economy.

“We didn’t expect that given the growth environment,” she told said.

At 5pm (AEST), the Australian dollar was trading at US79.75c, compared with US79.37c late yesterday. It traded above US80c in New York overnight.

With budget deficits forecast over coming years, Andrew Lilley, debt strategist at UBS said there would no shortage of supply to the government bond market.

“Bond investors needn’t worry about a shortage of supply. In spite of the narrowing in underlying cash deficits, net (government) issuance will be larger over the next two fiscal years on average than the one passed,” he added.

Earlier, the Australian Office of Financial Management said it would issue bonds worth $78 billion in the 2015-16 financial year to meet the government’s financing requirements.

ANZ debt strategist Martin Whetton said that on a net basis, this equalled $42.2 billion new issuance after deducting maturities of existing debt worth $38.2 billion.

Government data on the day further reinforced a weak inflation outlook for Australia.

Wages grew by 0.5 per cent in the first quarter from the fourth quarter, slightly less than that expected by economists.

Kieran Davies, chief economist at Barclays said wages were growing at their slowest rates since the current data set was invoked in 1997, and compared with gains seen during the global financial crisis.

“We imagine that this would reassure the Reserve Bank of Australia that ongoing cost pressures are minimal even as the lower currency provides a one-off boost to inflation,” Mr Davies said.