AUD/USD dips on dismal fiscal update

Government releases gloomy fiscal update

At first glance, Australia has managed to cope exceedingly well with Covid-19, compared to many other countries. The country reacted quickly and firmly to the virus, and as a result, Australia has suffered only 128 deaths to Covid-19, an exceedingly low number. The low death toll, however, belies the devastating toll that Covid-19 has taken on the Australian economy.

Australian Treasurer Josh Frydenberg was in the unenviable position of being the bearer of bad news, as he delivered an economic and fiscal update on Thursday. The Treasury Department said that the budget deficit ballooned to A$86 billion in the last fiscal year, wiping out the earlier forecast of a surplus of A$5 billion. The numbers look much worse for fiscal year 2020-2021, with a projection of a massive deficit of A$184 billion. Frydenberg did not mince words, saying that the “economy has taken a big hit and there are many challenges to confront”. The government also reported that net debt stands at A$488 billion and is expected to climb to A$677 billion this fiscal year, which is some 35% of the country’s GDP.

Finance Minister Mathias Cormann admitted that the country was in a “very challenging fiscal position”, but argued that Australia was in a better position than almost any other country with regard to Covid-19. That may well be true, but the government has to deal with a massive debt and rising unemployment and lower tax revenue due to the severe economic situation. Will this have a negative impact on the Australian dollar? The risk currency has confounded many experts, with strong gains despite the Covid-19 crisis. AUD/USD has jumped 3.0% so far in July and the currency broke above the 71-mark on Wednesday, for the first time since April 2019. The Aussie is soaring sky-high, but the sobering numbers on the ground could hamper the currency.

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AUD/USD Technical

AUD/USD is trading at 0.7114, down 0.36% on the day. The pair was flat in the Asian session and lost ground in European trade. AUD/USD is steady early in the North American session.

  • 0.7109 is fluid. Below, there is support at the 10-day line at 0.7092. This is immediately followed by support at 0.7085.
  • There is resistance at 0.7146, followed by resistance at 0.7178

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Currency Analyst at Market Pulse
Kenny Fisher joined OANDA in 2012 as a Currency Analyst. Kenny writes a daily column about current economic and political developments affecting the major currency pairs, with a focus on fundamental analysis. Kenny began his career in forex at Bendix Foreign Exchange in Toronto, where he worked as a Corporate Account Manager for over seven years.