Australia to ‘definitely’ lose AAA rating

BT Investment Management’s head of income and fixed interest, Vimal Gor, said the current AAA rating from Standard & Poor’s, Fitch Ratings and Moody’s Investors Service is likely to go by July 2016.

Moody’s has previously warned that the plan to curb government spending is unlikely to balance finances, and could result in a “credit negative” for the country.

Mr Gor argues that this will see a drop in the value of the Australian dollar to below $US0.60, given Australia’s current twin deficit is “moving the wrong way”.

“The AAA is great when you have twin deficits because … it helps you to support your currency. But when that goes, I just think the currency has got sub-60 written all over it,” he said.

Other investment managers also argue this, with UBS Asset Management’s head of fixed income for the Asia-Pacific, Anne Anderson, suggesting that “life continues”.

“There are lots of countries that have lost their AAA, that hasn’t meant anything, but our currency adjusts well,” she said.

In a note to investors earlier in 2016, AMP Capital’s chief economist Shane Oliver cautioned that losing the AAA rating would mean the previous 20 years of budget reform would “come to nought”.

[Related: Australia headed for ‘growth upswing’]

Australia to ‘definitely’ lose AAA rating

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>BT Investment Management’s head of income and fixed interest, Vimal Gor, said the current AAA rating from Standard & Poor’s, Fitch Ratings and Moody’s Investors Service is likely to go by July 2016.

Moody’s has previously warned that the plan to curb government spending is unlikely to balance finances, and could result in a “credit negative” for the country.

Mr Gor argues that this will see a drop in the value of the Australian dollar to below $US0.60, given Australia’s current twin deficit is “moving the wrong way”.

“The AAA is great when you have twin deficits because … it helps you to support your currency. But when that goes, I just think the currency has got sub-60 written all over it,” he said.

Other investment managers also argue this, with UBS Asset Management’s head of fixed income for the Asia-Pacific, Anne Anderson, suggesting that “life continues”.

“There are lots of countries that have lost their AAA, that hasn’t meant anything, but our currency adjusts well,” she said.

In a note to investors earlier in 2016, AMP Capital’s chief economist Shane Oliver cautioned that losing the AAA rating would mean the previous 20 years of budget reform would “come to nought”.

[Related: Australia headed for ‘growth upswing’]

Australia to ‘definitely’ lose AAA rating

Killian Plastow

Last Updated: 30 June 2016 Published: 01 July 2016