Aussie Sinks after the S&P Downgrades their Outlook

Points to consider in the Aussie Dollar Forex market:

• The Aussie dollar moved lower against its major counterparts.
• The S&P has lowered their credit rating outlook to negative.
• The ratings agency cited fiscal instability and vulnerabilities.

The Aussie Dollar has fallen sharply lower this morning against the US Dollar and its other trading counterparts after the S&P Global Ratings downgraded Australia’s credit outlook from AAA stable to AAA negative. After this happened the ASX also moved lower suggesting the Australian Dollar’s movement was thanks to risk-aversion.

In a statement the S&P cited that the lower outlook was in part due to fiscal vulnerabilities. The ratings agency said the country has a high level of debt which weighs down on its strengths. What does a lower credit rating mean for Australia? They might have to deal with higher borrowing costs. This happens as traders begin to price in the higher probability of default. This then leads to an overall increase in the cost of capital which puts downward pressure on economic growth and leads the Reserve Bank of Australia to enact further monetary easing.

Aussie Dollar and the Fed brings the Area Markets Lower

This morning the Asian and Pacific Rim markets were mostly mixed after the S&P downgraded Australia. Investors were digesting a rather dovish Federal Reserve Meeting minutes as well as a strengthening in global oil prices.

The Australian S&P ASX 200 managed to trade flat, up 0.3 percent, thanks to support in energy, materials and the financial sub-index. The Financial sub-index is very heavily weighted on the exchange.