Australian Dollar Bounces as Government Unveils New Budget
By: Eddy Peng May 10, 2017
The Australian dollar keeps struggling to hold its ground following the dismal Retail Sales report, with moderate decline by 0.57 percent to $0.73437 against the U.S. dollar on Tuesday. The AUD/USD outlook remains gloomy as it breaks out of the triangle formation from earlier last week, and the pair is still seeking to support below.
However on Wednesday following 2017-18 budget statement as the coalition government under Malcolm Turnbull unveils a A$75B fiscal stimulus program to spur job and wage growth, Aussie dollar is bouncing back around 0.2 percent to $0.73574 as of 11:30 a.m. in Sydney after dropping for the past three sessions to the 4-month lowest level.
In macroeconomics, Australian government imposes new levy on big five banks to raise A$6.2 billion over the next four years, which means that these giants of financial sectors are facing a new tax, tougher penalties for misdeeds and efforts to spur competition as Turnbull taps voter resentment against the lenders to finance infrastructure and health spending.
According to what Scott Morrison, the Treasurer of Australia, said in the budget released Tuesday in Canberra, the government intends to raise funds by imposing a 6 basis points levy on liabilities over A$100 billion, and it won’t apply to superannuation funds or insurance companies.
The changes are likely to have a negative impact upon profitability and the competitive position of the five largest banks, and will forces them to either take a blow to their profitability or pass the charges on to customers by lowering deposit rates and raising borrowing costs. Turnbull said the banks have capacity to afford the impost and shouldn’t pass it on to borrowers.
In addition, on the background that Sydney, Melbourne housing may overheat, Australian banking regulator will get additional powers and be required to curb property lending both in the shadow banking sector and in specific geographic areas. Bringing non-bank lenders into APRA’s regulatory purview will strengthen oversight of a sector that has grown as the big four banks tighten their lending criteria.
Despite projections for A$29.4B deficit, Moody’s Investor Services notes that the budget remains supportive of a AAA-credit rating, and the expansion in public spending may encourage the Reserve Bank of Australia (RBA) to change its tune at its next policy meeting on June 6 as Governor Philip Lowe warns ‘interest rates in Australia will increase’ as the economy continues to transition from the mining boom.
Technically, broader outlook for AUD/USD remains titled to the downside followed the failure in attempting to test the November high (0.77772), despite a positive sign of 2017-18 fiscal budget’s unveiling. The pair remains at risk of erasing the gains from the start of the start as price & the Relative Strength Index (RSI) largely preserve the downward trends carried over from March.
Keep a close eye on AUD/USD’s moving in these two days. If it fails to bounce back later and break out of 0.73437 (68.3% retracement), further decline may occur and the bearish momentum gathers pace.
Chart 1: AUDUSD Daily
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