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AUD Dips again following Budget announcement

Market Analysis

AUDJPY, Daily              

The Australian government earlier today issued the Australian Mid-year Economic and Fiscal Outlook. The plan is to run a AUD36.5 bln deficit for 2016/17, (which is AUD500 million better than the AUD37.1 bln predicted in the May budget) It also anticipates GDP growth shrinking to 2% (from 2.5%) during 2016/17 and a plan for surplus by 2020/21. The deficit is due to peak at 19% of GDP in 2018/19.  Reuters called it a “budget that drips with red ink… with top credit (AAA) rating at risk”. However, S&P Global Ratings later said that the update had no immediate impact on Australia’s AAA rating but warned that they were pessimistic about the government’s ability to close budget deficits and return a balanced budget.

The AUD came under more pressure wit the release of the news, it currently trades at 0.7260 to the USD having been north of 0.7500 only last Wednesday. The EURAUD is up to 1.4377 from a low last week of 1.4090. However it is against the JPY and CHF that the moves today were the most significant with gaps down on the opening trades of the week. Of the two AUDJPY is my preferred pair (even with BOJ meeting today)  and I have a SHORT position form 85.6000 with a short term target 1 at 84.9000 (the 20 DMA) and Target 2 at 82.7600 around the lower Bollinger band, 50 DMA and 38.2 Fibonacci retracement level of the recent move up to north of 87.4000.

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Stuart Cowell

Market Analyst

HotForex

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