Economists are predicting the federal budget will have little impact on the Australian dollar or sharemarket, as it’s believed most of the changes have already been announced or leaked.
It’s predicted there could be some volatility as it gets closer to 7.30pm, when the budget is announced, but largely both the dollar and the sharemarket will remain stable.
Housing Industry Association chief economist Harley Dale told SmartCompany in the lead up to the federal budget, it’s likely to be a “relatively quiet day” of trade.
“There is lots of speculation about what might actually transpire this evening and at the moment it’s all about chasing the rumour and conjecture.
“Should there be any material surprises in the budget outcomes themselves tonight, particularly in terms of the size of the deficit or the magnitude of spending or revenue projections, this could have an impact on the dollar and the sharemarket,” he says.
AMP Capital Investors chief economist Shane Oliver told SmartCompany greater than expected fiscal tightening could have an impact on markets.
“In the broad scheme of things, the budget is a relatively minor factor for the currency market because the size of the deficit is relatively small.
“The real impact for markets will be if there is any tightening in the budget and if the move back to surplus, if it’s a long way away, this would also be a concern. The real issue is the extent of further fiscal tightening and the impacts of this on what the Reserve Bank of Australia’s outlook and how much it will cut interest rates,” he says.
Oliver says it’s likely there will be further tightening, but this will have minimal effect.
“I think it will be relatively modest tightening because it’s an election year. There might be some volatility around the 7.30pm and again if there are any huge surprises, but other factors would have a bigger influence,” he says
JP Morgan chief economist Stephen Walters told SmartCompany the budget will have little impact on trading, unless there is a “larger than expected deficit announced”.
“There is always something happening, but most of the measures have already been communicated or leaked. If there are any big surprises in terms of the size of debt, then this will have an impact. But we don’t think this will be the case, we already know there is going to be a deficit. We think it’ll be as already flagged,” he says.
The budget is due to be released by Wayne Swan at 7.30pm in Canberra, as the Australian dollar has opened below parity with the United States dollar for the first time since June 2012.
At 10.06am it had rebounded slightly to $1.02 US dollars, but many economists are now predicting its high run is over.
“It could well stay below parity. The party is over for the Australian dollar and the broad trend in commodity prices is also down,” Oliver says.
Dale says there are no certainties yet and the “jury is still out” on if it will stay below parity.
“There is a body of thought which is suggesting it will stay below parity and go down to the mid-90s mark, that would be some boost to confidence for those in the manufacturing sector who are on the wrong side of the dollar.
“But it’s early days yet to determine what the average rate might look like in the next few months,” he says.
Walters says despite predictions the dollar will stay at or below parity, it is still stronger than many of its counterparts.
“The way the dollar is trading, it seems there is a lot of position changing going on, but the yields are still quite high and the budget deficit is still small compared to the rest of the world.
“It will probably stay and go back above parity within the next three to six months,” he says.
