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May 15th, 2013 
Peter Nolan
THE Australian dollar was weaker at noon as the announcement of an $18 billion budget deficit convinced traders more interest rate cuts are coming.
At 1200 AEST, the local currency was trading at 98.89 US cents, down from Tuesday’s close of 99.80 US cents.
The Australian dollar opened below 99 US cents on Wednesday, for the first time in 11 months.
It has stayed at those lower levels, following Treasurer Wayne Swan’s unveiling of an $18 billion deficit for 2013/14, with a return to surplus not expected until at least 2015/16.
IG market strategist Stan Shamu said a return to surplus, based on uncertain mining revenue forecasts, made traders reassess the prospect of more rate cuts.
“Prolonged fiscal tightness by the government might force the Reserve Bank’s hand to have an easy monetary policy for a prolonged time, and that’s really weighed on the Aussie dollar,” he said.
The Australian dollar also fell after the Dow Jones Industrial Average reached a new record of 15,215.25 points.
While a Wall Street rally usually helps the local currency, rebounds on US equity markets are now boosting the greenback, as financial markets re-evaluate the US Federal Reserve’s quantitative easing policy of buying American Treasury bonds.
“People feel the US has turned the corner.”
Meanwhile, the Australian bond market was weaker at noon.
At 1200 AEST on Wednesday, the June 10-year bond futures contract was trading at 96.705 (implying a yield of 3.295 per cent), down from 96.760 (3.240 per cent) on Tuesday.
The June three-year bond futures contract was at 97.360 (2.640 per cent), down from 97.430 (2.570 per cent) previously.
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