Dollar drops on rating worries

The local unit has been hit by concerns around S&P’s lowered outlook on Australian debt.

The Australian dollar has fallen after a day of swinging trade, after Standard & Poor’s warned the country’s triple-A credit rating is at risk.

At 5.30pm (AEST) on Thursday, the currency was trading at US75.08 cents, down from US75.20c on Wednesday. It had previously slipped below US75c in early afternoon trade, after jumping as high as 75.38 on Thursday morning.

S&P downgraded its outlook on Australia’s credit rating from stable to negative, due to the prospect of ongoing budget deficits without substantial reforms being passed by parliament.

The agency has also lowered its outlook on the credit ratings for New South Wales, Victoria and the Australian Capital Territory.

Westpac chief currency strategist Robert Rennie said the uncertain election outcome is likely to result in a longer run of budget deficits. “It was clearly a risk and the market has been living in its shadow since Monday morning,” he said.

“Gridlock or the inability to improve the fiscal situation over the forecast period is something I think a ratings agency ought to take into account.” The currency had a sudden plunge to 74.67 US cents on the announcement from S&P, before recovering some of that ground.

Mr Rennie tipped the Australian dollar will slip further on Thursday. “We should make fresh lows, we should be pushing down though 74 US cents and possibly lower,” he said.

AAP