Aussie Dollar Climbs as Tighter Budget Eases Rating Concerns

Australia’s dollar climbed against all but one of its 16 major peers after Treasurer Joe Hockey said the nation’s budget deficit will be narrower next fiscal year than economists had forecast.

Standard & Poor’s said Australia’s AAA credit rating won’t be immediately affected by the budget, easing concerns that it might be downgraded after Goldman Sachs Group Inc. said last month a commodity slump had spoiled Australia’s finances enough to threaten it. A gauge of the U.S. dollar fell amid a rout in global bond markets.

“The comments by the international rating agencies that it would not generate a change to Australia’s AAA sovereign rating probably helped lift the AUD to some extent after the government announced a smaller than expected budget deficit,” Richard Grace, chief currency and rates strategist and head of international economics at Commonwealth Bank of Australia, said via instant messaging. “However, some modest, unrelated U.S. dollar weakness probably also helped lift the Australian dollar.”

The Aussie rose 1.2 percent to 79.89 U.S. cents as of 1:18 p.m. London time. Australia’s currency climbed 1.1 percent to 95.854 yen.

The Bloomberg Dollar Spot Index -- which tracks the greenback against 10 major peers including the euro, yen and pound -- slid 0.4 percent to 1,163.80.

Lower Rates

The Aussie is the second-best performer versus the dollar this month, even as the Reserve Bank of Australia lowered its target interest rate to a record-low 2 percent on May 5, the second cut this year. Optimism about the nation’s economic recovery had earlier supported the Aussie as home loans grew more than economists estimated.

“We have seen a reasonable recovery in the Australian dollar, helped by the home-loans numbers overnight,”said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “This has encouraged the market into anticipating that perhaps the economy is looking firmer than what some might have been fearing.”

Australia’s currency extended gains after Treasurer Hockey said the nation’s underlying cash deficit in the 12 months through June 2016 will be A$35.1 billion ($28 billion), A$5 billion less than estimated in a Bloomberg survey.

“Some of the stimulus for small businesses might actually help reduce the prospect of any further near-term move by the RBA,” Ivan Colhoun, chief economist for markets at National Australia Bank Ltd. in Sydney, said by phone.

This month, Australia’s dollar has risen 1 percent against its U.S. peer, compared with gains of 2.2 percent for the pound.

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