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Budget talk pushes dollar down

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The Australian dollar is under pressure as talk of possible tax hikes in the government’s budget fuels expectations that interest rates will stay on hold for longer.

Early Friday, the local currency was trading at 92.72 US cents, down from 92.95 cents on Thursday.

The Australian dollar has been under pressure amid news reports that the federal government’s upcoming budget could feature tax hikes and spending cuts, Westpac senior market strategist Imre Speizer said.

“The market is looking at the Australian budget which may impose taxes and other burdens on consumers and cause additional slowing down in the Australian economy,” Speizer said.

“That, in turn, would cause the Reserve Bank of Australia to remain on hold for even longer.

“If consumers get hit with these taxes, they’re going to spend less and the RBA will be less likely to hike rates.”

The cash rate currently sits at a record low of 2.5 per cent.

The RBA is widely expected to keep the interest rate on hold when it meets next week but economists say the RBA’s next move will depend on how tough the budget is.

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