The Australian dollar hit an 11-month low on Tuesday as a rally in its US counterpart completely overshadowed an upbeat budget from the country's government which pledged a return to surplus a year early. The Aussie took a turn lower in London trade as the euro and sterling both slid, leaving the US currency as the main beneficiary. The Aussie was last down 0.8 percent at $0.7454, having breached a support around $0.7490.
The US dollar has been on a roll as economic data there outpaced much of the rest of the advanced world. Figures on Australian retail sales out earlier on Tuesday were a case in point, badly missing forecasts.
Still, the local bond market found solace in an improving outlook for issuance. While Australia's budget was larded with pre-election sweeteners, it was also blessed with higher tax receipts allowing the government to predict a surplus of 0.1 percent of GDP by 2019/20.
Australian government bond futures edged up, with the three-year bond contract gaining 1 tick to 97.810. The 10-year contract rose 1.5 ticks to 97.2450.
The New Zealand dollar fell to its lowest since December at $0.6975, having already taken a knock when a survey of inflation expectations showed a pullback. Net debt was estimated to peak at a relatively small 18.6 percent and issuance was expected to be pared back over coming years, underlining one attraction of Australia's triple-A debt to foreign investors.
It was a marked contrast to the United States were the deficit is exploding toward 5 percent of GDP due to massive tax cuts and increased spending.
Yields on US 10-year paper have risen above those in Australia for the first time since 2000. Currently the US government has to pay 21 basis points more than Australia to borrow for a decade. "The bond market would be very favourably disposed to the Budget achieving surplus earlier," said Westpac head of rates strategy, Damien McColough.