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Australian Dollar Rallies to 0.94 US

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Australian Dollar Rallies to 0.94 US

The Australian dollar rallied Wednesday, hitting a fresh one-month high against its US rival as the markets continued to weigh Australia’s annual budget report..

On Tuesday Joe Hockey announced his first budget as Australian Treasurer. According to Hockey, the Australian government will cut its budget deficit in half over the next year through a combination of tax hikes and spending cuts. The deficit is forecast to fall from A$50 billion to A$30 billion. Spending cuts are expected to result in thousands of job losses.

The Australian government expects unemployment to rise to 6.25 percent and stay there until mid-2016.

Australian jobs growth, having been subdued in 2013, has rebounded sharply in the early part of the year. Australian employers added 80,000 payrolls in February, led by the biggest surge in full-time employment in more than 22 years. March witnessed a net gain of 18,100 jobs, official data showed, as the unemployment rate fell from 6.1 percent to 5.8 percent.

The Reserve Bank of Australia has remained cautious about its employment outlook, claiming “there remains a fair degree of spare capacity in the labour market.” This has resulted in the slowest pace of wage growth in a decade.

The latest economic blueprint has attracted a fair share of critics, who say deep budget cuts could further harm Australia’s recovery. The latest budget reduced health and education spending by $A80 billion over the next ten years, which is expected to have a significant impact on low- and middle-class Australians, including seniors.

The budget reduces family tax benefits and senior concessions, and seeks to raise money through a deficit levy targeted at high-income earners. People with an annual income over A$180,000 will pay a temporary levy of 2 percent to raise $A3.1 billion over the next four years.

The AUDUSD climbed to a daily high of 0.9409 in the late Asian session, the pair’s highest in a month. The pair would later consolidate at 0.94, climbing 0.44 percent. The AUDUSD is likely find support at 0.9320, according to the daily chart. Technical resistance is likely found at 0.9395.

The AUDNZD reached a daily high of 1.0878. The pair consolidated at 1.0827, declining 0.1 percent.

The AUDUSD has steadily backtracked over the past month, falling from a four-month high of 0.9460 on April 10. The latest rebound comes amid signs Chinese demand is beginning to cool, as Beijing seeks to implement a broad range of structural reforms. Recent government data showed Chinese industrial production fell from 8.9 percent to 8.7 percent in the 12 months through April. Retail sales slid from 12.2 percent to 11.9 percent the same month. Urban investment fell from 17.6 percent to 17.3 percent, official data showed.

China is Australia’s largest trade partner, accounting for one-third of total exports.

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