-Bill Evans, Westpac Chief Economist
It seems that recently released budget will be a much larger drag on the Oz economy that is was thought earlier. Last week's release had a muted impact on the Aussie, however, effects are now started to feel on the exchange rate of the Australian currency. On Wednesday AUD/USD was changing hands around 0.9216, approaching a strong support around 0.92-mark. Technical analysis does not provide a clear ‘buy' or ‘sell' signal, therefore, the pair is likely to be driven by fundamentals. And from the resource-rich economy they have been not very convincing in the recent days.
Wednesday's report from the Westpac Banking Corp. added even more pressure on policymakers, showing that sentiment among Australian consumers plunged to the lowest level since August 2011, as households are afraid of the looming spending cuts and a new tax on high-income earners. A gauge of consumer sentiment fell 6.8% to 92.9 this month from 99.7 a month earlier, moving further below the 100-mark, indicating the growing number of pessimists. Last week Australian Treasurer Joe Hockey pointed out that the government will introduce spending cuts on welfare and the public service, as well as will impose a tax on the highest paid Australians. Separate reports showed that analysts believe these changes will hurt people's finance and will lead to even sharper drop in the support for Tony Abbott's government.
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