The Australian dollar was better bid on Friday morning as the USD rally is running out of steam, while the Aussie government unveiled the details of its income tax cut. The Australia dollar had rather a rough first quarter, but it nothing compared to the debasement that took place during the second half of April. Indeed, during that period fell as much as 5.10%, sliding from $0.7813 to $0.7412, amid disappointing economic data that range from stalling inflation pressures to weak retail sales. However, traders were hoping that the much-awaited tax cut promised by the government would brighten the picture in the longer-term.
The government unveiled a tax plan that would mostly benefit the top of the income class, which will do little to effetely boost consumer spending. As expected, it didn’t take very long for the opposition leader, Bill Shorten, to start a tax war with the current government, as he promised to redress this inequality. Therefore, there is now the risk that unhappy taxpayers will turn to the opposition at the next Australian election. A bigger, tax relief could only deplete further the budget balance, anything that investors don’t like.
By Arnaud Masset