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Fitch affirms Australia at 'AAA', outlook stable

Fitch Ratings Agency has affirmed Australia's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) at 'AAA' with stable outlook. Australia's senior unsecured local-currency bond ratings are also affirmed at 'AAA'. The Country Ceiling is affirmed at 'AAA', and the Short-Term Foreign- and Local-Currency IDRs at 'F1+'.

Fitch cited Australia's strong institutions, effective governance and high income as key supports for the rating.  Flexibility offered by a free-floating exchange rate, credible monetary policy framework and low public debt has supported economic growth.

Australia's fiscal position remains weak and Fitch estimates the general government deficit at 3.0 percent of GDP in the fiscal year ended 30 June 2016 (FY16), 0.4pp higher than the forecast in our March 2016 review, and higher than the 'AAA' median of 0.3 percent of GDP. It expects deficit to rise to 3.2 percent of GDP in FY17, before falling to 2.2 percent in FY18 and 1.6 percent in FY19. Fitch projects the general government debt to GDP ratio to stabilize at around 40 percent from FY18 onward, converging with the median for 'AAA' rated sovereigns.

Fitch expects Australia's real GDP to grow 2.9 percent in 2016, faster than the 'AAA' median of 1.9 percent. A decreasing drag from mining investment on account of strong services growth, resilient consumption and rising commodity exports along with higher public spending on infrastructure, continued low interest rates and increased production of natural gas should help maintain real GDP growth around current levels over the next two years, Fitch said.

AUD/USD edges higher from session lows at 0.7589 after Fitch rating action. The pair was trading at 0.7611 at around 0900 GMT. 20-DMA at 0.7592 is strong support on the downside. Break below will confirm weakness. Technical indicators are slightly bearish, stochs are on the verge of a rollover from overbought territory, RSI biased lower.

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