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[SYDNEY] The Australian dollar stayed near a six-month trough on Monday after the government forecast a smaller-than-feared budget deficit this year, but that could not fully deflect the threat of a downgrade to the country's top credit rating.
The Aussie held at US$0.7300, after three straight days of heavy losses that pulled it to its lowest since June 3. The currency has shed all of its gains this year after the Federal Reserve pushed US interest rates higher last week.
The Australian dollar was up as much as 6.6 per cent in early November but tumbled on expectations of inflationary policies by US President-elect Donald Trump. The Fed has already signalled its intention to hike rates at a faster pace.
A patchy Australian economic performance - record low wages growth and lacklustre nominal growth - has not helped.
Treasurer Scott Morrison on Monday predicted a A$10 billion (S$10.5 billion) deterioration in the government's budget deficit over the next four years.
Ratings agencies Fitch and Moody's responded by saying that the budget update was in-line with the country's AAA ratings, but investors were watching for commentary from S&P Global Ratings, which put Australia on negative watch in July.
"Our view is that the AAA rating will be lost sooner rather than later as the fiscal outlook remains fragile," said Paul Dallas, chief economist at Capital Economics.
Even so, analysts do not expect a ratings downgrade to have a significant impact on the Aussie. "The risk is the AUD slightly underperforms early this week," said Elias Haddad, senior currency strategist at Commonwealth Bank.
"Firmer commodity prices, Australia's narrowing current account deficit and positive real interest rates will support the AUD, particularly on the crosses."
The Aussie rose against its New Zealand counterpart for a third straight day. It barely moved on the yen but stayed near a one-year peak.
The New Zealand dollar ticked higher on Monday, snapping three straight days of losses.
The Kiwi rose 0.3 per cent to US$0.6982, from a six-month low of US$0.6932 hit on Friday. That remained well below a one-month high of around US$0.7230 held before the Fed's decision to hike interest rates.
A series of strong second-tier economic data, including a survey by ANZ showing business confidence grew in December, provided support at the margin.
New Zealand government bonds eased, sending yields 1 basis point higher along the curve.
Australian government bond futures slipped, with the three-year bond contract down 4 ticks at 97.950. The 10-year contract fell 2.5 ticks to 97.105.