Australia targets a quick return to surplus

Today’s Federal Budget in Australia was a low-key affair even in the context of an imminent general election which will be a close contest. The aim of moving back to a fiscal surplus by 2012-13, some three years ahead of the previous schedule, should be achieved given new taxes and the prospect of sustained strong GDP growth. We still expect that inflation concerns and further Reserve Bank (RBA) rate hikes will lift bond yields a touch in coming quarters, but the Aussie dollar should hold strong.