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Australia and New Zealand Fiscal Outlooks Overshadowed by Fed

Australia and New Zealand Fiscal Outlooks Overshadowed by Fed

2015-12-15 06:44:00
Daniel Dubrovsky, Analyst
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Talking Points:

  • Australia and New Zealand released updated 2015-16 fiscal projections
  • Aussie, Kiwi Dollars little-changed as FOMC dominates the spotlight

Find Key Turning Points for the Australian and New Zealand Dollars with DailyFX SSI

The Australian and New Zealand Dollars showed a tepid response after their respective countries posted fiscal outlooks. Australia’s Treasury reported that the country’s 2015-2016 budget deficit is expected to widen to -A$37.4 billion compared to May’s -A$35.1 billion estimate. In addition, the 2016-2017 deficit will also widen to -A$33.7 billion compared to the prior estimate of -A$25.8 billion.

Australia’s unemployment rate is expected to be 6 percent by the second quarter of 2016, down from the May 6.5 percent forecast. At the same time, the nation’s GDP growth is expected to be around 2.5 percent in the second quarter compared to prior estimates of 2.75 percent. The inflation outlook has also been lowered to 2 percent in the second quarter from 2.5 percent.

In New Zealand, the Treasury forecasted a 2015-2016 budget deficit of -NZ$401 million. The prior forecast was a budget surplus of -NZ$176 million. In addition, the 2016-2017 budget surplus is expected to contract to -NZ$356 million from 1.5 billion. New Zealand’s 2015-2016 GDP growth forecast has been lowered to 2.2 percent from 2.9.

The currencies’ limited response likely stemmed from the announcements’ minor impact on near-term monetary policy expectations. The Reserve Bank of Australia maintained a neutral data-dependent outlook. The Reserve Bank of New Zealand recently signaled an end to its easing cycle. The elephant in the room remains Wednesday’s Fed interest rate decision in which the markets are pricing in an 81 percent probability of an interest rate hike.

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