S&P boosts credit rating

RATINGS agency Standard and Poor’s has maintained Australia’s sovereign credit rating at “AAA” and raised its outlook to stable from negative on the expectation of the budget returning to surplus early in the next decade.

S&P says it also expects property prices will continue to cool without crashing and that the housing market slowdown won’t weigh heavily on consumer spending and the stability of the broader financial system.

“While our base case is for a soft landing, our ratings could come under pressure if house prices fall sharply and increase risks to fiscal accounts, real economic growth and financial stability,” S&P said in a statement.

The agency also said it could lower its ratings if it turned out the government, in its view, was unlikely to return a budget surplus within the next five years.

“Australia’s weak external position means that its other sovereign credit factors, in- cluding the fiscal factors, need to be strong to keep the sovereign rating at the highest level on our scale,” S&P said.

“A stronger fiscal position would also be a strong buffer to absorb the consequences of an abrupt weakening of the housing market and the vulnerabilities that event could bring to financial stability.”

The agency also warned that the potential for falls in commodity prices such as iron ore had receded but still remained. The budget was unlikely to show a surplus before 2021, S&P said, because of state government infrastructure spending.

The Australian dollar meanwhile was heading for its best week in more than a year on the back of the S&P appraisal and as risk sentiment recovered from the latest round of Sino-US tariffs.

The Aussie dollar was at 72.93 US cents late yesterday and holding gains for the week of 1.9 per cent, the largest since July last year.

Sentiment has also been supported by promises of economic stimulus from Bei- jing and reports it might cut tariffs on imports from other countries, perhaps including Australia.

“The extent of AUD resilience in the face of the latest phase of US-China trade battles has been surprising,” said Westpac senior currency strategist Sean Callow. “The recovery in risk assets soon after the news suggests that this phase of the trade battle was indeed priced in.”

Copper was on track for its biggest weekly gain in a month, while iron ore has risen almost 6 per cent this month.